LIVE MARKETS-Housing remains an economic drag as high mortgage rates freeze the market 

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HOUSING STAYS FROZEN AS HIGH MORTGAGE RATES KEEP BUYERS AND SELLERS SIDELINED

The US housing market remains stuck in a frustrating stalemate, according to Cresset chief investment strategist Jack Ablin. Home prices have largely held their ground, but mortgage rates hovering near 7% continue to keep many buyers on the sidelines while giving existing homeowners little incentive to sell.

In a note published Tuesday, Ablin argues that mortgage rates, not the Fed's policy rate, are now the key factor driving housing activity. With the 30-year fixed rate still elevated, affordability remains a major hurdle. At the same time, many homeowners who locked in mortgages at much lower rates during the pandemic are reluctant to move, creating a powerful "lock-in effect" that is keeping inventory tight.

The result is a market characterized by weak sales and limited activity rather than falling prices. Homebuilders are also facing challenges, including high financing costs, labor shortages and elevated material prices, making it difficult to increase supply or offer more affordable homes.

Ablin also flags a sharp slowdown in multifamily construction as a potential problem down the road. While fewer apartment projects could help ease some inflation pressures in the near term, it may eventually lead to a shortage of rental units and renewed upward pressure on rents.

For the broader economy, housing remains more of a drag than a catalyst. Fewer home sales translate into less spending on furniture, appliances, renovations and related services, while sluggish construction activity weighs on overall growth.

The bottom line, according to Ablin, is that until mortgage rates move meaningfully lower, likely toward 6% or below, the housing market is likely to remain frozen, limiting both economic activity and the transmission of monetary policy.

(Terence Gabriel)

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