Key insights
- Zillow CEO highlights limited housing supply as the primary constraint on affordability, even if mortgage rates decline. Geopolitical tensions and rising oil prices are pushing mortgage rates higher, exacerbating affordability challenges. Low inventory continues to support home prices, particularly in the Midwest and Northeast. This suggests continued headwinds for the housing sector and potentially negative pressure on related equities.
The US housing market has a lot of hurdles to clear before getting into growth mode again.
"[Lower] mortgage rates help a little, but that's only a piece of the buyer affordability story," Zillow Group CEO Jeremy Wacksman said on Yahoo Finance's Opening Bid (video above). "If mortgage rates come back down, even a full point, it's not that much savings on your mortgage payments because home prices have run up so much. Home prices are up 60, 80-plus percent from pre-pandemic levels, more in some markets. And the solution to that is more supply."
He added, "It is a lot of programs to relax zoning and permitting and fast track modular and pre-approved designs, and really work at the local level to get building in affordable housing going faster."
The US housing market could currently be defined as "two-speed," where stabilizing mortgage rates are clashing with new geopolitical volatility.
Read more: When will mortgage rates go down? Oil prices and inflation create uncertainty.
The Trump administration's $200 billion liquidity injection in the form of mortgage bond purchases briefly pushed 30-year fixed rates below 6% in February. But the war in Iran has reversed that momentum.
Mortgage rates have risen back up to 6.54% as of March 25, due to soaring oil prices and inflation fears. Rates are at a six-month high, with no indication of when they may come back down to earth.
Affordability remains the primary hurdle to buying a house. The typical household now spends nearly 47% of its annual income on recurring bills, with housing costs acting as the biggest anchor.
Inventory levels have risen modestly by 4.9% year over year, yet supply remains stuck at a 3.8-month level — well below the six months experts consider "balanced." This scarcity continues to prop up prices in resilient markets like the Midwest and Northeast.
"This conflict in the Middle East started right at the end of February, and we saw pretty good sales results in the first week of March," KB Home CEO Rob McGibney told analysts on a late-Tuesday earnings call. "But the last couple of weeks have been a little softer than what we would like to see or what we normally get this time of year."
"We just don't have a lot of visibility right now as I don't think anybody does into how long this conflict may go on, and how it's going to impact consumer psyche and confidence," McGibney continued. "But we feel that right now, it's weighing on the consumer."
Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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