Housing market could become ‘full-blown headwind’ to economic growth

The US housing market has seen some highs and lows across regions but is generally holding up well with modest annual growth in house prices despite subdued activity in many areas.

But could worse be ahead? On economist has given a stark warning that mortgage rate cuts are required to avoid damage to home sales, homebuilding, and even house prices – while noting that a decrease from the near 7% borrowing rate is unlikely.

Mark Zandi, chief economist at Moodys Analystics, says that builders are reluctant to build due to increased costs, house prices have gone sideways, and demand is slowing.

“Housing will thus soon be a full-blown headwind to broader economic growth, adding to the growing list of reasons to be worried about the economy’s prospects later this year and early next,” he wrote in a post on X.

June’s release of the S&P CoreLogic Case-Shiller US National Home Price NSA Index, covering all nine US census divisions, reported a 2.7% annual return for April, down from a 3.4% annual gain in the previous month.

Meanwhile, recent stats from RE/MAX shows that the median sale price nationwide was $442,000 in May, up by a modest 0.6% year-over-year ($2,500) and 1% month-over-month. But this belies a variation of more than 20 points between the best and worst performing markets.

With many would-be homebuyers staying on the sidelines even as inventory rises, rents have increased slightly.

Rents nationwide increased by 3.1%, compared to 3% in May 2024, continuing a trend from the past few months as prices return to pre-pandemic rates of growth at 3.4% according to Cotality. For high-end properties there was a sharper rise (3.9%) compared to a year earlier (3%).

"Annual single-family rent growth accelerated in May for the fourth consecutive month, signaling sustained momentum in the rental market. While rent growth increases have been gradual, they stand in stark contrast to the cooling trend in home price growth, which has been slowing throughout 2025,” said Molly Boesel, Cotality senior principal economist. “This divergence isn’t surprising — many would-be buyers, deterred by elevated home prices and interest rates, are staying in the rental market, driving up demand. Monthly gains in the single-family rent index have consistently outpaced seasonal norms this year, suggesting that annual rent growth for 2025 is on track to exceed 3%."