Housing demand remains strong even with rate volatility - analyst

[English suburban housing estate with many trees]
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U.S. pending home sales [https://seekingalpha.com/news/4594864-pending-home-sales-rise-more-than-expected-in-april] data released earlier Tuesday reinforce that housing demand remains robust despite recent mortgage rate volatility, according to UBS homebuilders analyst John Lovallo.

“Rates are a challenge,” Lovallo acknowledged in a CNBC interview on Tuesday, noting that mortgage rates have climbed 70 basis points since the start of the war in the Middle East. However, he emphasized context matters: rates remain 60 basis points below their January 2025 peak and 30 basis points lower year-over-year.

The analyst pointed to homebuilder (ITB [https://seekingalpha.com/symbol/ITB]) (XHB [https://seekingalpha.com/symbol/XHB]) performance as evidence of underlying strength, with companies in UBS coverage posting an average 3% order growth through the spring selling season despite geopolitical uncertainty.

Lovallo sees the recent sell-off as a buying opportunity, particularly for D.R. Horton (DHI [https://seekingalpha.com/symbol/DHI]) and PulteGroup (PHM [https://seekingalpha.com/symbol/PHM]), which he believes are well-positioned if rates stabilize and demand holds.

With 30-year fixed rates currently at 6.68%, builders can effectively buy down rates for new construction, Lovallo noted. Existing home sales face greater challenges since sellers lack tools like rate buydowns or building smaller-footprint homes.

Geographically, Texas, Florida and the Carolinas remain the hottest markets, though some Midwestern states have shown unexpected strength, the analyst said, adding that inventory challenges in Sun Belt markets from last year have largely cleared.

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