The housing market might crash in the near term as mortgage demand remains under pressure because of low housing inventory and high-average 30-year fixed mortgage rates.
Homebuyers locked into the sub-5% pandemic-era mortgage rates simply aren’t selling. The total number of homes on the market for the four weeks ending September 3, 2023, has declined 18% year-over-year, registering the biggest decline since February 2022. Meanwhile, new listings fell 9.3%.
Prospective home buyers have also been thwarted by rising property prices, which have increased for five months in a row. According to the National Association of Realtors (NAR), more than half of U.S. metro areas registered home price gains in the second quarter of 2023. It also reported that the median sale prices of existing homes are near record highs.
Last month, mortgage rates climbed to their highest level in 23 years. Mortgage rates have risen as the Federal Reserve undertook aggressive interest rate hikes since last year to curb high inflation. The weekly average of the 30-year fixed-rate mortgage as of September 7, 2023, stood at 7.12%.
The high mortgage rates led to mortgage applications reaching the lowest level since 1996. According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 1, 2023, mortgage applications fell 2.9% compared to the prior week.
MBA’s Vice President and Deputy Chief Economist Joel Kan said, “Mortgage applications declined to the lowest level since December 1996, despite a drop in mortgage rates. Both purchase and refinance applications fell, with the purchase index hitting a 28-year low, as prospective buyers remain on the sidelines due to low housing inventory and elevated mortgage rates.”
Freddie Mac’s chief economist Sam Khater said, “The economy remains buoyant, which is encouraging for consumers. Though inflation has decelerated, firmer economic data have put upward pressure on mortgage rates, which are straining potential homebuyers in the face of affordability challenges.”
Although nonfarm payrolls increased by 187,000 in August, the unemployment rate was 3.8%, up surprisingly from 3.5% in July. If unemployment keeps rising, it could lead to missed mortgage payments and foreclosures. With skyrocketing mortgage rates, high housing prices, and the possibility of a recession between now and July 2024 at 59%, a housing market crash is highly likely.
In the event of a housing crash, defensive stocks such as Walmart Inc. (WMT), American Water Works Company, Inc. (AWK), and Eagle Materials Inc. (EXP) will likely help cushion one’s portfolio. The products and services these companies provide are always in demand, irrespective of the economic cycles.
Let’s discuss these stocks in detail.
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club.
WMT’s revenue grew at a CAGR of 5.2% over the past three years. Its EBITDA grew at a CAGR of 3.3% over the past three years. In addition, its EBIT grew at a CAGR of 4.6% in the same time frame.
In terms of the trailing-12-month Return on…
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