The housing market may face a significant slowdown as rental inventory continues to rise, according to Moody’s Analytics chief economist Mark Zandi. In an interview with CNBC, Zandi stated that the increasing supply of rental properties is resulting in lower rent prices, which in turn is likely to weaken home prices.

Zandi pointed out that the impact of growing rental inventory is particularly noticeable in high-end properties, where the construction of multi-family towers in urban centers has led to decreased rents and has affected the single-family housing market. He emphasized that this trend indicates a broader weakness in home prices moving forward.

The chief economist highlighted that the surge in rental inventory has intensified the overall competition in the housing market, which will put additional pressure on sellers to lower prices for existing homes. Zandi also noted that renting a single-family home offers a lifestyle similar to that of owning one.

Furthermore, national rental prices are expected to level off as residential construction has rapidly increased, particularly in the multifamily sector. This surge in new inventory comes at a time when the housing market is facing a supply shortage, compounded by homeowners holding back from selling their properties due to tighter Federal Reserve policy and lower mortgage rates.

Zandi expressed the belief that homeowners will eventually need to sell their homes due to life events, and when they do, they will face increased competition and may need to lower prices to attract buyers. He also mentioned that with mortgage rates expected to settle around 5%-6%, housing sales may improve, provided there is no recession and incomes continue to rise.

While Zandi anticipates the housing market starting to recover at 6% mortgage rates, he does not expect sales to return to pre-slowdown levels until rates drop closer to 5%.

By smith steave

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