President Donald Trump has rarely shied away from creative policy initiatives, and was at it again recently when advocating for the introduction of a 50-year mortgage. In doing so, he drew attention to a housing affordability crunch not dissimilar to our own in the UK.
Spare a thought for the American homebuyer. While Britons grumble about 4 per cent mortgages, the US 30-year fix – America’s most popular mortgage product – averages 6.3 per cent, reflecting the higher spreads lenders charge on long-duration loans. These rates are drifting lower, but remain well above the sub-4 per cent rates available for most of the decade up to 2022.
The negative consequences are twofold. First-time buyers can’t afford to get on the housing ladder, and existing buyers are reluctant to move and take out a costlier mortgage. Sentiment is weak, and the market has slowed accordingly: analysts at Citi expect around 4mn housing transactions this year, nearly a third below record 2021 levels.
Unsurprisingly, then, overall mortgage lending activity has slowed down. Lending volumes in the three months to the end of September fell 3 per cent quarter on quarter to $600bn (£455mn), but were still 3 per cent higher than a year earlier, according to property data provider Attom.
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Winners and losers
The affordability crisis is having repercussions for the US housing market, which Jeremy Wacksman, chief executive of property portal Zillow (US:Z), said is “bouncing along the bottom”. For all the pessimism, there are still opportunities for investors willing to buy the dip, with several companies’ shares having underperformed in recent months.
A decline in mortgage issuances would usually have a negative impact on mortgage originators such as Rocket Companies (US:RKT), but the company’s third-quarter earnings beat market expectations, even if it issued softer guidance for the remainder of the year.
Rocket has recently consolidated its market-leading position through multiple acquisitions, and analysts at Deutsche Bank think there is upside to the company’s earnings power once the market normalises. It trades on 22 times analysts’ 2026 earnings forecasts.
The chronic undersupply of housing in the US, estimated at about 3mn-4mn homes, is pushing up prices despite subdued demand. While this supports issuance volumes (and Rocket’s revenues), it is ultimately bad news for affordability.
Lacklustre demand is hurting housebuilders, including the ‘Big 3’ of DR Horton (US:DHI), Lennar Corporation (US:LEN) and PulteGroup (US:PHM). Their share prices have fallen between 7 and 14 per cent since early September, after third-quarter earnings underwhelmed investors.
“New home demand remains impacted by affordability constraints and cautious consumer sentiment,” said DR Horton’s chief executive Paul Romanowski in a recent earnings call. Build cost inflation, although moderating, isn’t helping either.
Analysts at Citi expect nationwide housing starts to decline 2 per cent this year to 1.34mn and to remain flat in 2026. They are neutral-rated on the housebuilding trio, and expect declining volumes and margins to push 2025 earnings per share down 20-40 per cent versus 2024 levels.
PulteGroup’s cheaper valuation, on only 11 times forward earnings against a range of between 13 and 15 times for the other pair, makes it the preferred pick of analysts at JPMorgan.
There have been pockets of weakness elsewhere. Sales growth at home improvements giant Home Depot (US:HD) has decelerated in recent months, prompting the company to warn on profits last week. Finance chief Richard McPhail blamed “ongoing consumer uncertainty and housing pressure” as well as a relatively benign hurricane season. Performance at smaller peer Lowe’s (US:LOW) has been more resilient.
Reasons to be constructive
Not everyone is suffering, however. The affordability crisis will keep more prospective homebuyers renting for longer, and there are ways to take advantage of this trend.
Build-to-rent landlords Camden Property Trust (US:CPT), Equity Residential (US:EQR) and UDR (US:UDR) all have huge portfolios of apartments that they rent out, similar to Grainger (GRI) in the UK, but with greater scale and higher margins.
Analysts at Citi expect slowing new supply and higher resident retention to support landlords’ pricing power. Their preferred pick is Camden Property Trust, which trades on 15 times analysts’ 2026 funds from operations, a measure of cash flow.
Property platform Zillow, not dissimilar to the UK’s Rightmove (RMV), has been performing strongly, despite the unfavourable market backdrop. The company’s third-quarter revenues grew an impressive 16 per cent, ahead of its own guidance. The company also guided for a similar growth rate in 2026, plus a 200 basis point improvement in the operating margin.
This performance demonstrated “the durability of Zillow’s business across all segments”, argued analysts at Deutsche Bank, whose $90 price target implies 25 per cent upside to the current share price. The shares are not cheap, however, trading on 33 times analysts’ 2026 earnings estimates.