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Moody’s economist says housing correction – not a crash – is underway

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Much higher mortgage rates will drive home prices down in “juice” markets such as Phoenix and Tucson Arizona, the Carolinas, northeast Florida and Boise, Idaho, but won’t end up doing fall in prices overall, a leading economist predicted this week.

Bloomberg reports that Mark Zandi, chief economist at Moody’s, made the prognosis at a housing policy summit in Washington, D.C., where he said a lack of mortgage defaults and sales in difficulty would prevent prices from falling too much.

“That’s when you have crashes, when you have a lot of foreclosures and a lot of struggling sales,” Zandi said at the event. “It just won’t happen.”

Zandi noted that housing vacancy rates, which reached historic highs before the financial crisis that led to the Great Recession more than a decade ago, are at historic lows and that the quality of underwriting this time around is high, most loans are plain vanilla 30 or 15 year fixed rate products. Therefore, there is no sign of subprime or negative amortization before the latest foreclosure crisis.

On top of that, the preponderance of speculation and reversal is relatively low nationwide, easing concerns.

Low mortgage rates and a lack of housing inventory during COVID-19 shutdowns have sent home prices skyrocketing in recent years — a trend that is expected to slow as the Fed tightens policy and rates rise. mortgages are approaching 6%. The central bank has raised rates in recent months in an effort to reduce inflation rates that have hit their highest level in decades.

The 30-year mortgage rate hit 5.81% this week, according to Freddie Mac data as reported by the New York Post, from 3.02% the same week a year ago.

Rising interest rates have already caused a slowdown in the housing market according to Lending Tree senior economist Jacob Channel.

“Fewer people are getting mortgages, homes are staying on the market longer, and some sellers are cutting prices,” Channel told the Post.

However, the prices are not yet affected. The National Association of Realtors said the median sale price for existing homes was $407,600 in May, up 14.8% from a year ago.

[Bloomberg] — Vince DiMiceli