Mark Zandi, Chief Economist with Moody’s, told CNBC that a housing correction,” not a housing “crash,” was eminent.  Find out why.

Housing Correction, NOT Housing Crash

In a recent interview with CNBC, Mark Zandi, Chief Economist with Moody’s Analytics, chose his words very carefully when he said that the housing market is headed for a correction.

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When asked to define the difference between a market correction and market crash, Zandi pointed to comparisons between the two pre-2008 and current housing markets:

  • stronger lending practices – practices incorporate better underwriting strategies put into place after the 2008 housing crash
  • higher credit scores – more than 70% of today’s potential buyers have credit scores of 760 and above compared to less than 25% of potential buyers pre-2008, according to the Mortgage Bankers Association)
  • tight housing market with a combined homeowner/rental vacancy rate of less than 3%, according to the US Census Bureau

Housing Correction

Zandi acknowledged that today’s housing market is correcting itself due to these factors:

  • a spiking interest rate of nearly 6% and likely to climb higher
  • first-time and move-up buyers being locked out of the market because of this 6% interest rate
  • employers beginning to roll back remote work options
  • existing home sales down -3.39% in May
  • new home sales up +10.65% in May – most all of these new home sales were “pending” sales some months ago when prices and lower mortgage rates were locked in
  • Zandi said, “Interest rates at 6% may not be comfortable but, 6% interest rates are digestible.”

Most Worrisome Markets

Zandi believes that housing markets in the Southeast and Mountain West, first to benefit from the pandemic housing boom, will likely be the first housing markets to experience market corrections.

In the Southeast, Zandi pointed to

  • Jacksonville FL
  • Tampa
  • Atlanta
  • Raleigh

In the Mountain West, Zandi pointed to

  • Tucson
  • Phoenix
  • Salt Lake City

What About Institutional Investors in Correcting Markets?

Zandi believes that the own-to-rent model is “here to stay.”  He sees institutional investors as long-term investors.  Zandi does not see flippers as consistent players in correcting markets since flippers are often in this sector for the short-term.

Institution investors, according to Zandi, “…may not buy in this market but they’re not going to sell.  This own-to-rent model is a business model that works and (is) another reason that this housing market is not going to crash.  Besides, these investors have lots of capital so they can just wait it out until interest rates begin to normalize again.”

Thanks to CNBC. 

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