Housing correction ‘dead ahead’, Moody’s chief economist Mark Zandi warns – here’s how he sees things playing out over the next several months

Housing correction 'dead ahead', Moody's chief economist Mark Zandi warns - here's how he sees things playing out over the next several months

Housing correction ‘dead ahead’, Moody’s chief economist Mark Zandi warns – here’s how he sees things playing out over the next several months

Existing home sales fell 5.4 percent in June from May, but prices remained strong, according to the National Association of Realtors. The median sale price of existing homes in the US hit a new record high of $416,000 in June, up 13.4% from a year ago.

But for those who continue to watch those rising house prices, Moody’s Analytics chief economist Mark Zandi warns that a correction could be “dead.”

But not, as many fear, a crash, he says in an interview on CNBC’s “Fast Money.”

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Mortgage rates are rising

Mortgage rates continue to climb as interest rates rise further, with some predicting a near-term rise of 3.25%. On a 30-year fixed-rate loan, mortgage rates are now around 6%.

As those rates rise, mortgage payments can be several thousand dollars higher than they were a year ago, Zandi says. And this loss of reach is exactly why it sees a correction in the near future.

“If we stay around six, I think the market will adjust and eventually we’ll get that correction. If it goes much higher than that, we’re going to have a more significant downturn in the housing market.”

First time home buyers were locked out

Fed Chairman Jerome Powell on June 14 told millennials and other first-time home buyers that now is not the time to invest in housing. In his speech he said prices may continue to rise for a while as it continues to be a “tight market”.

“If you’re a homebuyer or a young person looking to buy a home, you need a bit of a reset,” Powell said. “We need to get back to a place where supply and demand are back together and inflation is back to low levels and mortgage rates are low again.”

But even as the Federal Reserve continues to work “really hard” to slow the economy’s growth in inflation and mortgage rates, home prices continue to rise. Housing is the most interest-sensitive sector of the economy, Zandi says, and is therefore likely to be the first to feel the effects of inflation.

And that includes slowing home prices as mortgage rates continue to rise.

“This is for the scenario, so far, exactly what the Fed would like to see.”

Institutional housing investment here to stay

Meanwhile, institutional capital giants like Blackstone and Brookfield are buying homes to rent out at high interest rates — something Zandi believes is likely to stick around, even with higher mortgage rates. This is because these institutions have accumulated significant capital in recent years and need ways to deploy it wisely. And long-term real estate investment is the perfect choice.

Zandi suggests that these long-term investments are why we are unlikely to see a roof collapse. These are long-term investments that will not sell overnight, creating stability in the market.

“I think this is a business model that works. I don’t think they will sell. They may not be buying in this environment, they may be waiting to see how things shake out.”

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This article provides information only and should not be construed as advice. Provided without warranty of any kind.

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