Housing Market Begins ‘Most Significant Contraction in Activity Since 2006,’ Mark Zandi Says
The Great Deceleration is finally effecting change in the housing market, and experts say the beginning stages of what will be a long and drawn-out slowdown could lead to the most significant contraction in market activity since 2006. After only a few months of the Fed’s inflation control measures, the monthly principal and interest payment on new mortgages is up 35% year-over-year, and on top of that, home prices are still rising, Fortune reports.
As affordability is pushed further out of reach, home sales are steadily slowing in many regional markets across the U.S., causing sellers to lower their list prices at the fastest pace since 2019. Overvalued markets are slowly beginning to cool, leading most economists like Moody's Analytics chief economist Mark Zandi to believe that a full-blown housing correction is underway.
This housing slowdown, of course, is by design. Earlier this year, financial markets, in response to Federal Reserve actions, priced up mortgage rates. That saw the average 30-year fixed mortgage rate spike from 3.11% in December to 5.09% as of last week. In the eyes of the Fed, if it can slow down the housing market—a major driver of inflation—it can begin to rein in overall inflation.
Zandi doesn't foresee U.S. home prices falling nationally over the coming year. However, he forecasts this "housing correction" will likely result in 5% to 10% price reductions in significantly "overvalued" housing markets like Boise and Charlotte.