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FEATURED ARTICLE |
Is the national housing market cheap relative to inflation and Fed rates? |
Hey there, bargain hunter — housing is the one "asset class" where people argue with their feelings first… and the math second. |
So let's do the opposite. |
We'll start with the cost of money, then prices, then the real question investors should care about: |
Is housing "cheap" in payment terms relative to inflation and Fed rates — and which stocks reprice if that answer changes this year? |
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Because for housing, "cheap" almost never means "the sticker price is down." |
It means: the monthly payment is finally tolerable again. |
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1) The cost of money: what the Fed did, what mortgages did, and why that gap matters |
Fed funds is still restrictive-ish.
The Fed's target range is currently 3.50%–3.75%. |
Mortgage rates are lower than last year, but still high versus the 2010s.
Freddie Mac's weekly survey shows the 30-year fixed mortgage rate at 6.09% (Feb 12, 2026), down from 6.87% a year earlier. |
That improvement matters — but here's the Cheap Investor trap: |
The market doesn't buy "rates are down" |
The market buys "payments are down enough to restart demand." |
To see why, compare mortgage rates to inflation: |
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That implies a rough "real mortgage rate" (mortgage minus CPI) around ~3.7%. |
That's not a perfect measure (mortgages price off long bonds and inflation expectations), but directionally it tells you: the cost of money is still heavy. |
Translation: even if home prices don't rise much, affordability can still be tight because financing costs are doing the damage. |
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2) What the national housing "tape" says right now: prices sticky, volume weak |
Let's anchor on the latest national snapshots: |
Existing home sales: weak |
January existing-home sales fell 8.4% to an annual rate of 3.91M, the lowest since late 2023. |
Prices: still sticky |
NAR's median existing-home price was $396,800 in January — up 0.9% YoY. |
Inventory: still not "normal" |
NAR shows 3.7 months of inventory (January). |
This is the key contradiction investors keep missing: |
Demand is weak (sales down) Prices aren't collapsing (median price still rising) Supply is tight enough that sellers don't have to panic
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Why? The lock-in effect + thin supply + demographics + replacement-cost inflation. |
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3) Is housing "cheap" relative to inflation? |
This is where you have to separate two concepts: |
A) "Cheap" as real home prices (price vs inflation) |
Home prices have cooled in real terms because inflation rose and price growth slowed. |
The Case-Shiller index shows price appreciation has moderated and (in some measures) has lagged inflation lately. For example, Trading Economics notes Case-Shiller 20-city price growth around ~1.4% YoY in late 2025 — below inflation readings around that time. |
So yes: on a "real price" basis, housing is less frothy than it was. |
But… |
B) "Cheap" as payment affordability (price + rate) |
This is what actually determines buying power. |
Even if prices are flat, a 6% mortgage keeps payments elevated relative to the last decade. |
That's why NAR's affordability index improving is notable, but it's not a victory lap. |
NAR's Housing Affordability Index rose to 116.5 in January (better than prior months).
Improving affordability tells you the market is slowly healing — but it doesn't tell you housing is "cheap" in an absolute sense. |
Cheap Investor conclusion so far:
Housing is less expensive relative to inflation than it was, but it's not broadly cheap relative to the cost of money. |
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4) The missing variable: supply and the "inventory ceiling" |
If housing were truly cheap, you'd see: |
sales rebound sharply listings surge price cuts broaden
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Instead, we see: |
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That points to an economy with constrained supply, not just constrained demand. |
Also note: homeowner vacancy remains extremely low. Census shows homeowner vacancy at 1.2% in Q4 2025.
A market with ultra-low homeowner vacancy doesn't behave like a market ready to "flush." |
It behaves like a market where sellers can wait. |
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5) So what would make housing "cheap" this year? |
Three things can do it, and you only need one: |
1) Mortgage rates fall enough to restart volume |
Even a move from ~6.1% toward the low-5s can materially change payments. |
That's why Freddie Mac's decline from 6.87% → 6.09% YoY matters.
It's not "cheap," but it's a step toward "tradable." |
2) Income growth outruns housing costs |
If wages keep rising faster than home prices + financing costs stabilize, affordability improves without prices falling. |
3) Supply actually unlocks |
If listings surge (job losses, forced selling, life events, or new construction scale), prices can soften and create "cheap" in sticker terms. |
Right now, the data says #3 is the least visible. |
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6) The stock market angle: who gets hit or helped if housing becomes "cheap" again? |
Here's the fun part — the "cost of money" is a lever that reprices entire sub-sectors. |
Think of housing stocks in four buckets: |
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Bucket A: Homebuilders (big beta to affordability + volume) |
If rates drift lower and demand returns, builders often benefit first because they can: |
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Builders can actually gain share in "locked-in" markets because existing homeowners won't list, pushing buyers toward new builds. |
Who fits: |
D.R. Horton (DHI) Lennar (LEN) PulteGroup (PHM) NVR (NVR)
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Risks if rates stay high: |
backlog slows incentives rise margins compress orders decelerate
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Cheap Investor playbook:
If you think housing gets "cheaper" via rates drifting lower, builders can be the cleanest equity expression. |
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Bucket B: Building products and housing supply chain (quiet winners when starts stabilize) |
These are the "unsung heroes" that benefit when: |
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Think: |
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Why they matter:
Even when transactions are weak, people still repair, remodel, and replace. |
If housing volume rebounds, these names can see demand pop without needing home prices to surge. |
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Bucket C: Mortgage originators + housing transaction platforms (high beta to volume) |
These names are basically "housing activity derivatives." |
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When mortgage rates fall, refi volume can return, and purchase activity often improves.
When rates rise, volume dries up fast. |
Cheap Investor warning label:
These can move a lot — but they are often "cheap for a reason."
You're betting on a volume regime change, not just valuation. |
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Bucket D: REITs (rate-sensitive, but not all the same) |
Housing-related REITs split into: |
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Recent rental data: rental vacancy is 7.2% (Q4 2025).
Rising vacancy can pressure rent growth — which matters for REIT pricing power. |
If rates fall: REITs often get a multiple tailwind (lower discount rates).
If rates stay high: REITs can face valuation pressure, even if fundamentals are fine. |
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7) The big question: what does "cheap housing" imply for inflation and the Fed? |
Here's the macro loop investors should keep on their weekend checklist: |
Shelter inflation influences CPI persistence CPI influences Fed policy Fed policy influences mortgage rates mortgage rates influence housing activity housing activity influences the economy
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In the latest CPI release: |
CPI all items: +2.4% YoY shelter index: +3.0% YoY
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Shelter inflation still running above headline means: |
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Cheap Investor framing:
Housing doesn't need to crash. It just needs to stop feeding inflation.
If shelter inflation cools, the Fed gets room to ease — and that's when housing becomes "cheaper" through financing. |
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8) Actionable scenarios for this year (and what to watch) |
Scenario 1: "Soft landing + rates drift down" |
What happens: |
Mortgage rates trend lower from ~6% transactions slowly recover home prices stay sticky (inventory still tight)
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Likely stock winners: |
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Watch: |
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Scenario 2: "Rates stay higher for longer" |
What happens: |
volumes stay muted prices don't fall much nationally, but regional weakness grows builders rely on incentives to move product
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Likely winners: |
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Likely losers: |
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Scenario 3: "Growth scare / job weakness" |
What happens: |
rates may fall, but forced selling rises in pockets housing becomes "cheap" in sticker terms, not just payments credit spreads matter
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Likely winners: |
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Watch: |
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Bottom line (the direct answer) |
Is the national housing market cheap relative to inflation and Fed rates? |
Relative to inflation: housing is less inflated than it was; price growth has cooled and in some measures has lagged inflation recently. Relative to Fed policy and the cost of money: not broadly "cheap" yet, because financing remains expensive: Fed funds 3.50%–3.75% and mortgages around 6.09%. In market behavior terms: prices remain sticky (median $396,800, +0.9% YoY), but volume is weak (3.91M annual pace), which is classic "payment-constrained" housing.
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What this means for stocks this year:
If housing gets cheaper via rates drifting down, builders + building products + transaction platforms are the clearest upside expressions. If rates stay high, the "stay-put economy" (repair/remodel, services) is the stealth winner. |
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investing involves risk, including the potential loss of principal. Always do your own research before making investment decisions. |
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