A Giant Sucking Sound

Business economist Mark Zandi has announced that we are officially in a housing correction.

We knew that this was going to happen as soon as the Fed started raising rates, this is the most immediate response to any such action, but I did not expect one of the most prominent analysts in the field to announce it so soon:

Moody's Analytics chief economist Mark Zandi is ready to call it. He tells Fortune that we've officially moved from a housing boom into a "housing correction."

The real estate data rolling in for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is rising fast, while mortgage applications and existing home sales are also falling.

This drop-off isn't a result of seasonality, or a soft month or two. Zandi says it's a trajectory flip: Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically.

"The housing market has peaked…everything points to a rolling over of the housing market," Zandi says. "In terms of home sales, they're falling sharply. Housing demand is coming down fast. Home price growth [will] go flat here pretty quickly; we will see [home] price declines in a significant number of markets."

Unlike a stock market correction, which means a greater than 10% drop in equities, Zandi says a "housing correction" means the end of the housing boom and the beginning of a period where home prices will fall in some regional markets. Over the coming 12 months, he expects year-over-year home price growth to be 0%. If that comes to fruition, it'd mark the worst 12-month stretch since 2012. It would also be whiplash for real estate agents and brokers who've watched home prices soar 19.8% over the past year.

I think that he's being too optimistic. 

I expect every single urban market in the nation to see prices fall.

The combination of real estate mania with private equity jumping into real estate with both feet, has created a very fragile situation.