This was supposed to be the year the long-ailing U.S. housing market finally recovered.
And falling mortgage rates were going to be central to that story. After all, the average 30-year fixed-rate mortgage had been drifting lower since January 2025, when it was just above 7%. Thirteen months later, in February of this year, it had fallen below 6%, a significant difference in borrowing rates -- and a big incentive -- for Americans looking to buy a first house or move to a new one.
Over the past six weeks, however, the 30-year rate has jumped back above 6.5%.
That's largely due to concerns about rising inflation, triggered by the spike in oil prices. Inflation worries have sent the yield on the 10-year Treasury soaring, from 3.94% just before the Iran war began, to 4.34% this week, an increase of 40 basis points in about a month. And mortgage rates tend to move with the 10-year yield.
Such a dramatic increase in mortgage rates is a huge challenge for the already troubled housing market. And you can see that in the price action of homebuilder and home improvement stocks, which have been hit hard.
Image source: Getty Images.
Homebuilders and home improvement chains are suffering
Homebuilder Lennar (LEN +0.45%) has plunged 14.3% over the past month, while PulteGroup (PHM 0.29%) is down 8.9%. For comparison, the S&P 500 index is down 3.4% over the past month.
NYSE: LEN
Key Data Points
Home improvement stocks have fared similarly. Home Depot (HD 0.52%) has dropped 11% over the past month, and Lowe's (LOW 0.64%) is down 8.5%.
NYSE: HD
Key Data Points
There's not a lot of relief in sight for these stocks, either, at the moment. When the market anticipates Federal Reserve interest rate cuts, homebuilder and home improvement stocks tend to rally on hopes of lower rates. But rising inflation concerns dashed those hopes. Right now, the futures market is pricing in zero rate cuts from the Fed through the remainder of 2026.
And several Fed officials recently suggested that a rate hike -- not a cut -- could be the Fed's next policy move if inflation spikes due to the war-induced spike in energy prices.
Investors will find out more this Friday morning when the Bureau of Labor Statistics reports Consumer Price Index data for March. The Cleveland Fed's Inflation Nowcasting tool estimates that inflation jumped 0.84% in March from the previous month, which would be a very large one-month move.
Realtor.com says Friday's inflation report could determine whether spring homebuyers get a workable market or another reason to wait for improvement. You could say the same about shareholders of the four companies I mentioned above.
