Moody's Chief Economist Sounds "Red Flare" Warning for the Housing Market

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News Flash

Economist Raises "Red Flare" – Housing Market Warning

Mark Zandi from Moody's Analytics just upgraded his housing market warning from "yellow flare" to "red flare". When a top economist starts using emergency signals such as “red flare,” you should pay attention.

The culprit? Mortgage rates stuck near 7% are crushing buyer demand. Zandi warns we're looking at declining home sales, construction and prices unless rates drop significantly.

The data backs up his pessimism:

• New home sales plunged 13.7% in May

• Single-family housing starts dropped 4.6% in June

• 38% of builders cut prices in July, up from just 29% in April

Builders are responding by delaying land purchases and cutting back on rate buydowns – those incentives they used to make homes more affordable. When builders start hoarding cash instead of buying land, that tells you everything about where they think this market is headed.

Bottom line: The housing sector that typically drives economic growth is tapping the brakes hard. Unless rates ease soon, this might just be the beginning.

Contrastingly, REITs Just Raised $22.5 Billion – Here's Why That Actually Matters

On the other hand, Real Estate Investment Trusts ("REITs”) pulled off something impressive in Q2 2025: they collectively raised $22.5 billion through capital offerings. That's not just a big number – it's a signal of serious investor confidence when markets feel anything but certain.

Why does this matter for your business? Because REITs with deep pockets can weather storms better than their cash-strapped competitors.

This capital gives REITs two major advantages. First, they can strengthen balance sheets and reduce debt dependency. Translation: they're better positioned to maintain those dividend payments that attract investors (remember, they're required to distribute at least 90% of taxable income annually).

Second, they've got serious acquisition firepower. Sectors like industrial properties, data centers, and specialized healthcare facilities are still showing strong performance. REITs with cash can pounce on opportunities while others sit on the sidelines.

The real story here? Investors are betting on real estate's inflation-hedging qualities and the transparency that comes with publicly traded real estate companies.

Sources: [Source], [Source], [Source], [Source]

More You Should Know

• Mortgage Rates Remain Elevated: The Mortgage Bankers Association projects that 30-year fixed mortgage rates will persist at elevated levels around 6.7% through the end of 2025 and into mid-2026, driven by ongoing economic uncertainty. [Source]

  Mortgage Applications Defy High Rates: Despite prevailing high interest rates, mortgage purchase applications have remarkably climbed for 22 consecutive weeks, signaling robust buyer demand in the market rather than a scarcity of buyers. [Source]

• Rent Decline Continues, Dips Further: U.S. rents for 0-2 bedroom properties experienced their 23rd consecutive month of year-over-year decline in June 2025, dropping 2.1% to a median of $1,711, though they remain significantly higher than pre-pandemic levels. [Source]

• Homebuilding Hits 11-Month Low: U.S. single-family homebuilding declined to an 11-month low in June, as elevated mortgage rates and ongoing economic uncertainty continue to deter home purchases and prompt builders to adopt a more cautious approach, reflected in slumping building permits. [Source]

• Buyer's Market Emerges: Housing inventory has surged 17% year-over-year, providing buyers with the most options since 2019 as home appreciation flattens and sellers cut prices nationwide, extending typical sale times to 17 days. [Source]

• High Rates Hit Home Prices: The U.S. housing market is experiencing a significant slowdown in price growth, with nearly a third of top markets seeing annual price reductions due to sustained high interest rates, exemplified by a 9% decline in Cape Coral, Florida. [Source]

• Homebuilders Slash Prices, Boost Incentives: In July, 38% of homebuilders, the highest percentage since 2022, reduced prices and offered incentives like mortgage rate buydowns to attract buyers amidst high mortgage rates and economic uncertainty. [Source]

• Owner-Occupiers Propel Office Market: Owner-occupier transactions have significantly increased since 2022, comprising nearly 30% of office acquisitions by 2024, as traditional investors withdraw from the struggling office sector. [Source]

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