The housing sector has been one of the most resilient areas of the economy during the coronavirus downturn, but Mark Zandi, chief economist at Moody’s Analytics, said Tuesday that he expects the growth to moderate later in the year.
Sales of new homes last month rose nearly 13% year over year, according to the Census Bureau. But Zandi said the sector will weaken as some of the government aid and regulations used to prop up the economy expire.
“The confluence of high unemployment and the end of the forbearance measures means that we’ll get more defaults and ultimately more foreclosures, more foreclosure sales, and that’ll put some weakness into the housing market,” he said on CNBC’s “Power Lunch.”
Millions of homeowners have taken advantage of forbearance programs that allow borrowers to miss mortgage payments, helping to insulate the housing market from a historic rise in unemployment.
Meanwhile, concerns about the coronavirus have sparked increased interest for homes in suburban and rural areas, according to real estate firms, leading to demand outstripping supply. More construction, particularly in the lower and middle areas of the price distribution, is needed to help the supply issues, Zandi said.
“There’s a severe lack of homes, both in the new market and the existing market,” he said.
That lack of supply is one reason that existing home sales have declined even though new home sales have jumped, Zandi said. The difference can also be explained by existing home sales measuring closings, making them a lagging indicator relative to new home sales, he said.
Zandi stressed that he does not expect a sharp downturn for the sector, saying the housing market has “navigated the pandemic remarkably well, and there are some very solid underpinnings. It’s just going to cool off a bit later this year.”
The demand for homes has been a positive for homebuilder stocks. The iShares U.S. Home Constuction ETF has risen more than 80% since March 23 and is now slightly positive for the year.