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Sentiment in the housing market has slumped again in recent months after a brief rebound in the middle of 2023. This comes as mortgage rates, now sitting well above 7%, dampen home sales.
According to the Freddie Mac Primary Mortgage Market Survey, 30-year fixed mortgage rates moved higher for the fifth consecutive week to a 23-year high of 7.57%. Meanwhile, NAHB Housing Market Index showed a 4-point decline in October, falling for the third consecutive month to reach a level of 40.
The NAHB result remained slightly higher than 38 reading seen in October last year and firmly above the mark of 31 hit in December — the lowest level since the depths of the pandemic and among the lowest readings for the index in the past decade.
Still, October’s 40 mark is well below from the 56 recorded in July and half the level of 80 seen in October 2021.
The NAHB index tracks sentiment among homebuilders, meant to give a glimpse of the health of the housing market for single-family homes. Its recent decline suggests a growing mismatch between buyers and sellers in a market dominated by interest rates that have not been seen for decades.
“Today’s housing market isn’t anything like the housing market of the mid-2000s – the housing market today is not overbuilt, nor is it driven by loose lending standards, sub-prime mortgages, or homeowners who are highly leveraged,” Odeta Kushi, Deputy Chief Economist at Firstam stated. “However, the current housing market is similar to the market of the 1980s. History doesn’t repeat itself, but it often rhymes.”
From a seller’s vantage point, the bulk of homeowners have a degree of equity built up in their homes and are locked into lower mortgage rates of 2%–4% — meaning that most are not in a hurry to sell their current home and look for another one that will likely cost them more.
On the other side, buyers are struggling with the high mortgage rates, which many do not want to take on. At the same time, buyers are also faced with elevated levels of inflation on other consumer goods and concerns about the broader markets slipping into a recession.
As the housing market continues to struggle, many investors can shift their attention towards housing-related stocks and exchange traded funds.
Homebuilding/Real Estate Stocks: Prologis (PLD), Welltower Inc (WELL), AvalonBay Communities Inc (AVB), Equinix (EQIX), Equity Residential (EQR), Sherwin-Williams Co (SHW), Home Depot (HD), Lowe’s Companies (LOW), and Floor & Decor Holdings (FND).
Homebuilding/Real Estate ETFs: Vanguard Real Estate ETF (NYSEARCA:VNQ), Vanguard Real Estate ETF (NYSEARCA:XLRE), iShares U.S. Real Estate ETF (IYR), iShares Residential and Multisector Real Estate ETF (NYSEARCA:REZ), The Hoya Capital Housing ETF (NYSEARCA:HOMZ), SPDR S&P Homebuilders ETF (XHB), and iShares U.S. Home Construction ETF (ITB).