Full Video Transcript Below:

CAROLINE WOODS: Joining me now, Mark Zandi, chief economist at Moody’s Analytics. Mark, great to have you back. Thanks so much for joining us.

MARK ZANDI: Yeah, Thanks for having me. I appreciate the opportunity.

CAROLINE WOODS: So mark, the Fed cut interest rates. We’ve been waiting for this. The big question now is now what. So let’s break it down. What does this mean for the housing market. Is now the time to buy a house?

MARK ZANDI: Well, it’s still pretty unaffordable despite the lower mortgage rates. You know, we’ve got very high house prices that rose quite a bit during the pandemic period and incomes have not kept up. So affordability is still a problem. And there’s still not a lot of housing inventory in many parts of the country, although that’s changing. So is it the time to buy a home. Well, better than it was, but still not great. You know, hopefully mortgage rates continue to come in. But there’s, as you know, there’s only a loose link between what the Federal Reserve is doing with short term interest rates and what that means for mortgage rates. It matters for mortgage rates. But, you know, there’s so many other things that drive those rates. So, you know, I don’t think we can count on the Fed by itself to get those weights down.

CAROLINE WOODS: So let’s talk about that a little bit more and dig into the other factors driving things like mortgage rates, because I know there are a lot of questions about refinancing as well. So for homeowners thinking about refinancing, knowing the Fed could cut again later this year, do you lock in now or do you wait and risk missing this window and talk to us about some of those other factors that could also play a part?

MARK ZANDI: Well, you know, just to make it concrete, I mean, the fixed mortgage rate 30 year fixed is sitting last. I looked at 6.25% And that embeds the expectation among investors that the Fed will continue to cut interest rates. So they cut last week. They’re going to cut in October. They cut in December a couple times. Three times. Next year. The federal funds rate target is going to go from 4% now to 3% you know, by this time next year that’s already embedded in mortgage rates. So if you look at the 6.25% and that makes sense to refi at that rate for most folks, that probably doesn’t make a whole lot of sense. The average coupon on an existing mortgage, the average rate on an existing mortgage is probably closer to four. Refi doesn’t make a whole lot of sense. Rates have to come down even more than what they have. So, you know, for most people it doesn’t still doesn’t make a whole lot of sense to refinance. You need to see rates that get into the fives before that becomes a real possibility for more, more people.

CAROLINE WOODS: When do you think that will be?

MARK ZANDI: I think it’s going to be a long way. You might get a window. I mean, obviously mortgage rates, interest rates broadly go up, they go down, they go all around. They’re highly volatile. So you might get a window that opens when rates are down. Maybe the economy, really stumbles and say, say for this next employment report, it comes in negative. And there’s a lot of recession concerns. You could see long term rates come in, mortgage rates fall and you get that window. So I’d suggest being prepared for the possibility you know, go through the window if you have the opportunity, but it’s one of those things that I wouldn’t count on it. It seems less likely than not that you’re going to get a window to open up anytime in the near future at least.

CAROLINE WOODS: OK and speaking of an economic slowdown, you actually track building permits to know if the economy is entering a recession. What do those tell you. Right now. Is a recession in the cards, mark?

MARK ZANDI: Well, recession risks are awfully high. They’re uncomfortably high. Building permit. There’s a lot of leading indicators of recession, some more tried and true than others. But one of the truest is building permits. It’s it leads, housing starts and actual construction. Of course, when we’re building homes, that creates lots of jobs and economic activity. So building permits are falling. That suggests that we’re going to see fewer starts, fewer completions, less Homebuilding, less economic activity broadly. And they’re down. They’re starting. They’ve come off quite a bit. Up until now it’s been mostly weakening in the multifamily part of the housing market. But now we’re starting to see single family building permits come off as well. The builders up until recently had done a really good job of maintaining sales through interest rate buy Downs and other incentives, but they’ve been giving up on that. It’s just not working. And now we’re seeing construction come off. And so that by itself signals the economy is going to struggle here over the next six to 12 months. And recession risks are awfully high.

CAROLINE WOODS: What does awfully high mean. Greater than 50% chance of a recession? What is what is your view there?

MARK ZANDI: Yeah, I mean, I put him at 40% to 45% very subjectively. I mean, again, looking at all these leading indicators, we’ve got other tools and analytics. They all suggest that we’re pretty close to 50 over 50. But, you know, it feels like to me, barring anything else going off the rails here, any other something else going wrong, which is obviously that’s entirely possible. But I won’t forecast that. You know, I’m not expecting that. But so barring that, I think the, you know, we’ll be able to navigate through without an actual economic downturn. But it’s going to feel uncomfortable. It already is feeling uncomfortable. Right look at the job market. We’re not creating any jobs at all. Job market is completely gone, completely flat. And really, the only industries that are adding to payrolls are health and hospitality. Outside of that, no one else is really adding to their roles. So we’re not in recession. I think we’ll avoid a full blown outright downturn, but it’s going to be close and it’s going to feel uncomfortable.

CAROLINE WOODS: On that note, one of the reasons the Fed cut interest rates is because of the job market weakening. Fed Chair Powell said downside risks to employment have risen. How bad is the jobs market right now. Can you put it into perspective for us. Is it a slowdown? Is it the start of real trouble?

MARK ZANDI: I’d say it’s stalled out. It’s gone sideways. I mean, really no net new job creation. I mentioned the two industries that are adding to payrolls. If you take those, if you just put them to the side, look at the rest of the job market. There’s you know, some industries are adding a little bit some shedding jobs. The net is effectively 0. No net new job growth since the beginning of the year. That’s pretty uncomfortable. Most of the weakening in the job market is because of a lack of hiring. Layoffs are low, and that’s good. So it’s, we’ve seen much worse labor markets when businesses have been laying off. So it’s not that they’re just not hiring. Of course, that’s really hard on younger workers, people trying to get into the labor market. So if you’re in your 20s and 30s, this feels like a very uncomfortable kind of economic environment to be in. Hours worked are down. So it’s not only about holding on to a job, it’s getting the hours that you want. And for many, many folks, their pay increases are now just barely keeping pace if they are with the rate of inflation. So their purchasing power is under pressure. So, you know, I’ve seen many worse labor markets where we’ve seen lots of layoffs and much higher unemployment. But this is a pretty tough one.

CAROLINE WOODS: As an economist, what keeps you up at night about the US economy over, say, the next six months?

MARK ZANDI: Well, it’s the tariffs in the immigration policy. I mean, I think at the root of the economy’s troubles are the tariffs in the translation into prices. Higher prices for consumers and higher input costs for businesses, and lower profit margins. And the immigration policy. A highly restrictive immigration policy, which is really weighing on various industries that depend on those workers construction, agriculture, manufacturing, transportation, distribution, retailing, leisure, hospitality, all of those. And I think the one thing that I just put on the radar screen that I know probably already there, but just to reinforce it, is the concern about Federal Reserve independence. The independence of the Fed is key to a well-functioning economy and financial system. If that’s gone, if we lose that, we’ve got a problem down the road. Not not here and now, but down the road with higher inflation, higher interest rates. So that’s also something I worry about in the context of current policy.

CAROLINE WOODS: OK we’ll leave it there. Mark Zandi chief economist, Moody’s Analytics. Thank you so much. Always appreciate your insights.

MARK ZANDI: Anytime. Thanks for the opportunity.