The competitive landscape for home sellers is intensifying due to a rise in rental inventory, according to Moody’s Analytics chief economist Mark Zandi. Zandi spoke with CNBC and highlighted the impact of new supply on the housing market, stating that the increase in rental inventory is leading to a decline in rent prices, which in turn will weaken home prices.
This trend is particularly noticeable in high-end properties, where the construction of multi-family towers in urban areas has contributed to lower rents and affected the single-family housing market. Zandi believes that this indicates a broader weakness in prices.
Furthermore, the influx of supply is creating increased competition in the housing market, prompting sellers to face pressure to reduce prices. Zandi also noted that renting a single-family home offers a lifestyle similar to that of purchasing one.
National rental prices are cooling and expected to stabilize further as residential construction has surged this year, leading to the highest levels of multifamily completions in the first two quarters since the 1980s.
The rush to add inventory comes amid a supply shortage in the housing market, exacerbated by homeowners’ reluctance to sell their properties. Tighter Federal Reserve policy has led to a surge in mortgage levels, encouraging owners to hold onto their properties. However, Zandi believes that owners will eventually have to sell their homes due to life events, leading to increased competition and potential price cuts.
As mortgage rates decrease, Zandi anticipates the 30-year fixed rate to settle around 5%-6% for the long term, down from the current rate of over 7%. He expressed optimism that this will help boost housing sales, provided there is no recession and incomes continue to rise.
Ultimately, Zandi believes that at a 6% mortgage rate, the housing market will start to rebound, but a return to pre-pandemic sales levels will require rates to drop closer to 5%.
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