Warning issued to homeowners as sales plummet

Daily Mail​

19-07-2025

A leading economist has issued a 'red flare' warning for the housing market and cautioned that it could drag down the entire economy. 'I sent off a yellow flare on the housing market in a post a couple of weeks ago, but I now think a red flare is more appropriate,' Moody's Chief Economist Mark Zandi wrote on X this week. A 'red flare' warning suggests the market is experiencing major instability and a fall is imminent.
It comes as construction of new homes has slowed and sellers are being forced to reduce their prices or pull their homes off the market entirely. 'Home sales are already uber depressed,' Zandi (pictured) wrote, adding that the housing market could become an issue for the wider economy. 'Housing will thus soon be a full-blown headwind to broader economic growth, adding to the growing list of reasons to be worried about the economy's prospects later this year and early next,' he wrote.
If the housing markets woes do tip into the wider economy it could increase recession fears in the coming months, Zandi warned. Zandi's biggest concern is persistently high mortgage rates, currently around 7 percent, which are making buying too expensive for many Americans. High rates have also locked in homeowners who have cheaper deals and cannot afford to move and refinance. 'Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7 percent soon,' Zandi wrote.
Sales of new homes dropped 13.7 percent in May compared to the month before, according to Census Bureau data. Zandi said further pressure is being piled on the housing market because homebuilders are simply 'giving up' on rate buydowns - providing a lump sum up front to reduce a buyer's mortgage rate and therefore their monthly payments - as they are now 'too expensive.'
The economist also pointed out that many builders are putting off making land purchases for future developments. 'New home sales, starts, and completions will soon fall' as a result, he predicted. It comes as frustrated home sellers are pulling their homes off the market because they can't get the prices they want.
A softer housing market has seen delistings surge 47 percent across the country in May compared to the same time last year. Others have been forced to slash their asking prices and accept a more reasonable offer in the current uncertain market.
More than 20 percent of listed homes had price reductions in June, the highest share for the month since 2016. While the price of homes across the US continues to move up, the rate at which they are climbing has slowed considerably.
May saw price growth at below 2 percent for the first time in over 13 years, according to the report. 'This is a drop compared to earlier this year when home prices were growing at above 3 percent, interest rates were slipping and the forecast for the market was stronger - even while inventory remained low,' Selma Hepp previously told the Daily Mail.