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Mortgage rates will stay at current levels well into the spring homebuying season, which means a “darker outlook for home sales, homebuilding and house prices,” Moody’s Analytics Chief Economist Mark Zandi said in a series of tweets over the weekend, echoing a growing chorus of forecasts that suggest a recession may be unavoidable.
Zandi said that although a previous forecast that mortgage rates would average around 5.5 percent through the spring selling season “seemed way high” at the time, but “now seems way low.”
“Fixed rates are currently near 6.5 percent, more than double what they were a year ago when they were hovering near a record low,” Zandi noted. “This has been a massive blow to affordability and the housing market.”
The veteran economist said he now thinks it’s likely that mortgage rates will stay elevated at 6.5 percent or higher this spring.
In their latest weekly market outlook, economists at Moody’s Analytics said they now put the odds of a recession at an “uncomfortably high” 59.5 percent.
“Contrary to popular belief, consumers are not the first to run to the bunker, pushing the economy into recession. Rather, the first to turn is housing, then business investment, followed by consumer spending,” Moody’s warned.
That’s because interest rates are usually headed up at the end of an economic boom, and “housing is extremely interest-rate sensitive.”
Ironically, a key factor driving rates higher is that investors who fund most mortgages are demanding an unusually high premium in comparison to comparable government bonds, out of fears that the home loans they make now could quickly be refinanced if rates drop.
What’s confounded Zandi and other forecasters is not…