In a series of posts on X last week, he noted that he sent off a “yellow flare” on the housing market just a few weeks ago but now thinks a “red flare” is more appropriate as the outlook is already deteriorating.

“Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon,” Zandi warned. “That, however, seems unlikely.”

Existing home sales unexpectedly rose in May, but still marked the slowest sales pace for any May since 2009, further evidence that the typically busy spring selling season has been a bust.

Meanwhile, sales of new single-family homes sank 13.7% in May from the prior month, and single-family housing starts dropped 4.6% in June, with permits down as well.

“Home sales are already uber depressed, but homebuilders providing rate buydowns had been propping sales up,” Zandi said. “They are giving up. It’s simply too expensive. A big tell is that many builders are delaying their land purchases from the land banks. New home sales, starts, and completions will soon fall.”

He added that home prices had also held up well, but are now going sideways and set to turn lower as near-7% mortgage rates crush demand.

In fact, the latest Case-Shiller home price report showed a 0.3% monthly fall in the 20-city index in April, steeper than March’s downwardly revised 0.2% dip.

And the latest Housing Market Index survey from the National Association of Home Builders showed 38% of builders cut prices in July, up from 37% in June, 34% in May, and 29% in April.

Putting more downward pressure on prices is increased supply. Home listings have been climbing, as even homeowners with low, pre-pandemic mortgage rates eventually need to put those properties up for sale and buy new homes at higher rates.

“Given their demographic and job situations, locked-in homeowners must move,” Zandi added. “They can only work around these needs for so long.”

Conditions are so tepid that many homeowners who listed their properties are taking them off the market after failing to find a buyer at the price they were offering.

Delistings are up 35% year to date and 47% year over year in May, outpacing active listing growth of 28.4% and 31.5%, respectively, according to a Realtor.com report this month.

For Zandi, that all adds up to bad news for the overall economy, which is already feeling strains from President Donald Trump’s tariffs.

“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 said.

Analysts at Citi Research issued a similar warning in May, when they pointed out that the economist Ed Leamer, who passed away in February, famously published a paper in 2007 that said residential investment is the best leading indicator of an oncoming recession.

Citi pointed to fewer permits for single-family-home construction and an increase in the effective supply of homes on the market amid weak demand. Median home prices of existing homes were also falling on a monthly basis.

“Residential fixed investment is the most interest rate sensitive sector in the economy and is now signaling that mortgage rates around 7% are too high to sustain an expansion,” Citi said.