Moody’s chief economist Mark Zandi said Friday that US existing home sales have bottomed out. The combination of high mortgages and expensive homes have kept buyers out of the market, but US incomes also play a role, he said. Meanwhile, mortgage rates have fallen for six consecutive weeks, the longest drop since 2008. Loading Something is loading.
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Typical home prices are far higher now than they were a year ago, according to Moody’s Analytics’ chief economist, Mark Zandi, and three things need to happen together to restore affordability and boost home-buying demand.
“Affordability has been completely hammered here and that’s the fundamental issue,” Zandi told Bloomberg on Friday. “You mix the high mortgage rates with the previously high house prices, it’s just too much to bear.”
In his view, there are three things the market has to see in order to ease the affordability crisis:
1. Lower mortgage rates
2. lower house prices
3. rising incomes
Zandi expects mortgage rates to eventually fall back to the 5%-5.5% range, as the Fed has laid out a path for a 5% Federal Funds Rate target, which is now embedded in market expectations.
The above-7% mortgage rates from just months ago likely signaled the peak, he noted.
As of this week, the average mortgage payment is $200 cheaper than it was several weeks ago, which has given homebuyers renewed purchasing power. Mortgage rates have now fallen for six consecutive weeks, which represents the longest streak of declines since 2008.
Even so, should US incomes continue to rise and the economy skirts a recession, home prices would have to see roughly a 10% decline to be affordable, Zandi said.
“That probably won’t happen until late ’24 going into ’25,” he said. “So I think we’ve got a couple years here before affordability will get to a place where, you know, demand will start to improve again.”