The U.S. housing market is flashing increasingly urgent warning signs, with Moody’s Analytics Chief Economist Mark Zandi calling attention to mounting risks that could weigh heavily on the broader economy. Citing persistently high mortgage rates and weakening fundamentals, Zandi recently stated that conditions now warrant a “red flare” alert, an indication of serious instability across home sales, construction activity, and prices.
Zandi noted that the market is unlikely to recover without a significant decline in mortgage rates, which currently hover near 7%. He warned that home sales, homebuilding, and house prices are poised to deteriorate further in the months ahead, compounding concerns about the health of the U.S. economy. “Housing will soon be a full-blown headwind to broader economic growth,” Zandi said in posts shared via X and LinkedIn, highlighting the risk of further contraction later this year and into early 2026.
The housing sector’s weakness is already evident. Builders who had been offering mortgage rate buydowns to sustain sales are now pulling back, citing unsustainable costs. Delays in land acquisitions by developers further underscore expectations of reduced activity ahead. Data from ResiClub and Realtor shows active home listings have surged sharply in key markets like Austin, Denver, and Memphis, yet demand remains muted.
Mortgage rates keep buyers sidelined in 2025
Home prices, while resilient through much of the past year, are beginning to stagnate or slip in several regions, according to analysts. Zandi’s assessment aligns with recent forecasts from Goldman Sachs, which predicts home prices will grow just 0.5% in 2025, the slowest pace in 14 years, and only 1.2% in 2026. This marks a sharp downward revision from earlier expectations of stronger gains. Goldman attributes the shift to three core factors: slowing price momentum, expanding housing supply, and persistently elevated mortgage rates.
Notably, the bank anticipates home price declines exceeding 5% in approximately 15% of major U.S. metro areas over the next two years, with cities like Miami, Orlando, Nashville, and Dallas identified as particularly vulnerable. Separate analysis from Capital Economics paints a similarly bleak outlook. The London-based research firm warns of prolonged stagnation in home sales and persistently weak first-time buyer activity. With mortgage rates expected to stay above 6.5% until at least 2026, affordability remains a key obstacle, particularly for younger buyers in the millennial and Gen Z demographics.
Capital Economics expects weak sales into 2027
Capital Economics projects that existing home sales will languish well below pre-pandemic levels through 2027, with only modest price appreciation expected during that time. The rental market, however, is experiencing stronger demand amid these affordability pressures. Tightening supply and robust rental demand, especially among younger adults priced out of homeownership, are fueling expectations of rent growth accelerating to 2% in 2025 and 3.5% in 2026. Multifamily construction is also expected to slow, further tightening supply. Overall, analysts agree there is no imminent catalyst for a broad housing market recovery.
Without meaningful reductions in mortgage rates or substantial improvements in household incomes, the U.S. housing market is expected to remain in a prolonged period of weakness. While homeowners with significant equity and strong credit profiles are largely insulated from the most severe risks, the broader economic implications of a stagnant housing market could become more pronounced as the year progresses. – By Content Syndication Services.