Housing Market Stocks And Trends For Q4 2022

Key Takeaways

• The housing market is slowing down after a long, hot run, partly as a result of recent changes put forth by the Federal Reserve.
• As inflation soars, the Fed will likely continue to raise interest rates. In turn, this further impacts demand for new home purchases in a negative way.
• We might be at the front end of a changing housing market cycle and possibly in a housing recession.
• See a list of housing market stocks below to help track and adjust your portfolio for this trend.

Housing Market Performance YTD

Throughout 2021, the housing market was red hot. With millions of buyers looking for a place to call home, record low mortgage rates fueled the flames. If anyone you knew was trying to buy a home during this time, you were likely regaled with tales of endless searches for dream homes and hyper-competitive bidding wars.

The growth of home prices is slowing. And, according to research from the National Association of Realtors, home sales are dropping. As of July 2022, existing home sales were down 5.9% from June 2022 and down 20.2% from a year ago.

The Existing-Home Sales data measures sales and prices of existing single-family homes for the nation overall, and gives breakdowns for the West, Midwest, South, and Northeast regions of the country.

Interest Rates and Housing Demand

Sellers are no longer seeing the intense demand that pushed housing prices sky-high. As buyers face uncertain economic times, demand is starting to fall.

One of the primary drivers of the housing market slowdown is higher interest rates. In 2022, the Federal Reserve began raising interest rates to combat high inflation. With Consumer Price Index, a key indicator of inflation, sitting at 8.5% as of July 2022, it seems likely that the Fed will continue to raise interest rates.

In general, rising interest rates tend to push demand for homes down. That’s because a higher interest rate makes it more challenging for buyers to afford a home purchase. After all, a higher interest rate means a higher monthly payment.

For example, let’s say a buyer is looking to purchase a home with a $200,000 mortgage. If they lock in a 3% interest rate over a 30-year term, their monthly mortgage payment would be $843. But if they are only able to get a 6% interest rate, their mortgage payment would be $1,199. With that increase, many would-be home shoppers are simply priced out of the market.

As interest rates rise, it’s possible that demand in the housing market will continue to drop.

Are Housing Prices Too High?

On average, the demand for home purchases has dropped in recent months. But that’s not true everywhere. Some housing markets are still growing at a very fast clip.

For example, Salt Lake City’s home sales have grown 15.2% YTD, and Boise City, Idaho, has seen its home sales increase 12.9% this year. But the tide seems to be changing and other markets are seeing a more stark correction. For example, Raleigh and Austin are seeing significant slowdowns.

While some housing markets are marching skyward, others are falling back down to Earth. With that, it’s possible that housing prices are just too high. It is going to be important to keep an eye on the home sales data, housing inventory data, average length of time new listings are on the market before closing, and 30 year mortgage interest rates for your local market. These factors will impact affordability and house prices in your local area.

Stocks Influenced By a Housing Recession

The state of the housing market is uncertain. But one thing is certain, changes in the housing market will impact a tight selection of stocks. As the housing market ebbs and flows, the following stocks will be impacted.

• Redfin (RDFN): Redfin saw some impressive pandemic gains. But most of that has been wiped out by the current uncertainty of the market.
• Zillow (ZG): As buyers start to cool on the housing market, Zillow’s target market begins to shrink. With that, it could set up slow times for the company.
• Home Depot (HD): When new homebuyers abound, Home Depot is there to help them get started on home improvement projects, lawn care, patio furniture, replacement fixtures, etc. Fewer new homeowners generally means lower sales for this store.
• Lowes (LOW): Like Home Depot, this big supplier for homeownership projects could see a drop in demand, particularly among first-time homebuyers who don’t opt to fix their current space.
• Real Estate Investment Trusts (REITs): REITs are directly tied to the housing market. If the housing market cools, REITs could suffer as well. But the strategy of the REIT will determine the type and severity of that impact.
• American Tower Corporation (AMT): In the commercial real estate realm, AMT may be bolstered by a recent lease agreement with Verizon for its communication sites.
• Public Storage (PSA): Public Storage provides self-storage facilities across the U.S. Its presence as one of the biggest landlords in the world means the real estate market will have an impact.

As you consider potential stocks to add to your portfolio, it’s a good idea to take the housing market trends into account. Although no one can predict the future, it’s clear that the housing market is slowing down in most parts of the country.

Bottom Line

The housing market is shifting around us, like the rest of the economy. Any investor looking at the housing market can’t help but see the effects of economic uncertainty. As inflation soars, the Fed will likely continue to raise interest rates. In turn, this impacts demand for home purchases in a negative way. We might be at the front end of a changing housing market cycle and possibly in a housing recession.

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