By Alice Seeley
The U.S. housing market is on the brink of a “deep freeze” as mortgage rates and home prices continue to rise, limiting buying and selling of houses, according to Moody’s Analytics chief economist Mark Zandi.
Earlier this week, the National Association of Realtors reported that existing home sales dropped 14.2 % to a two-year low last month. Data from the association revealed that seasonally adjusted sales hit a rate of 5.12 million in June, the lowest since June 2020. This is the fifth month in a row that sales declined. Sales were down 5.4% from May and 14.2 % from one year ago. This was below the 5.38 million rate that economists forecasted.
“It makes sense, with the higher mortgages conflating with higher house prices, first-time homebuyers just can’t afford to buy in. They’re locked out, and trade-up buyers, they’re locked in because if they sell and buy, they’ve got to get another mortgage at a higher rate, and their monthly payments are going to rise,” Zandi stated. “demand is really weakening very rapidly and, you’re right, I think housing is going into a deep freeze,” he continued.
As the Federal Reserve continues to increase interest rates to fight inflation, all forms of borrowing are becoming too expensive for many individuals and businesses. With these high rates, the number of mortgage loan applications hit a 22-year low last week. This low amount took a toll on the construction materials market, with lumber decreasing by almost 50% in value so far this year.
Zandi said that “house prices have peaked,” with sales likely to fall later this year or early 2023.
“I’m not arguing we’re going to crash; I’m just arguing there’s a major comeuppance coming in regard to house prices. I think the market is under a lot of stress,” he said.
