Core Viewpoint - Moody's Chief Economist Mark Zandi warns that the U.S. housing market is showing "red flare" signals, indicating potential instability and a significant risk of economic slowdown if the housing market continues to falter [1][2]. Group 1: Housing Market Conditions - The U.S. housing market is experiencing extreme weakness, with builders previously offering incentives like rate reductions and price cuts now abandoning these strategies due to high costs [2]. - New home sales, construction starts, and completions are expected to decline sharply as builders delay land purchases [2]. - The housing market's performance is critical as it influences consumer spending through the "wealth effect," and a downturn could lead to reduced consumption, tighter credit, and a weakened banking sector [6][7]. Group 2: Economic Implications - A significant downturn in the housing market could act as a "headwind" to broader U.S. economic growth, with home prices expected to stagnate or decline [2][10]. - The housing sector contributes approximately 15%-18% to U.S. GDP and employs millions, making its health vital for overall economic stability [6]. - Historical precedents show that severe downturns in the housing market can lead to economic recessions, as seen during the 2007-09 financial crisis [6][7]. Group 3: Mortgage Rates and Market Dynamics - The current mortgage rates are hovering around 7%, primarily due to the persistent high yields on 10-year U.S. Treasury bonds, which are not expected to decline significantly in the short term [8][9]. - The relationship between mortgage rates and Treasury yields indicates that unless long-term yields drop significantly, mortgage rates will remain elevated, further suppressing housing demand [9]. - Goldman Sachs has revised its outlook for U.S. housing prices, predicting minimal growth due to high mortgage rates and increased housing supply, contrasting sharply with earlier optimistic forecasts [10].