Why the Weak Housing Market Is a Threat to the Broader Economy -- Barrons.com

By Shaina Mishkin

As long-term bond yields spiked Tuesday morning, Apollo's chief economist issued a dire message about the weak housing market's impact on the economy and stocks.

High mortgage rates and home prices have quashed buyer demand, Apollo Chief Economist Torsten Sløk wrote in a Tuesday note accompanying the asset manager's 127-page housing outlook.

"Demand for housing is unfortunately under significant pressure," Sløk told Barron's by phone.

Charts in the economist's report outline the various warning signs: Households have stopped moving as the majority can only afford a home priced at $300,000 or lower, the report notes. As mortgage rates hover just below 7%, more than double their pandemic lows, price growth is largely stuck-except for the high price tier. Luxury buyers are the least dependent on mortgage financing.

A weak housing market "has a number of consequences," he says. The sector will contribute little to GDP as fewer homes are built.

The stuck housing market isn't so bad for homeowners, who have access to high levels of equity that they can borrow against, notes Sløk. But there's a big difference between those who already own homes and those who would like to.

"The insiders, of course, continue to do exceptionally well with home prices going up," he says. "Outsiders in the housing market, of course, continue to not do well because it has become so expensive for them to get a new mortgage."

A stagnet housing market also provides less buffer for stocks should artificial-intelligence spending slow down, Sløk says.

"If the business cycle does begin to slow down, then we would, of course, also begin to have a negative impact on the stock market overall-especially if it is the combination of AI spending slowing, and, at the same time, the negative effect from housing and autos also slowing," he says.

Lower long-term interest rates are key for housing market activity to improve, notes Sløk.

This week's higher bond yields, should they hang around, mean housing activity is likely to get further stuck in place. The 10-year Treasury yield, a key component of the 30-year fixed mortgage rate, rose to 4.795% on Tuesday-the highest yield since January 2025. Mortgage rates measured by Mortgage News Daily moved higher, to 6.89%, in response.

The continued gain in yields doesn't help home-builder stocks, which slumped amid higher bond yields on Monday. The iShares U.S. Home Construction exchange-traded fund, which tracks the industry, closed down 2.5% Tuesday at $92.36, its lowest close since May, according to Dow Jones Market Data.

Shares of three large builders, Lennar, D.R. Horton, and PulteGroup, fell 1.6%, 2.2%, and 2.5%, respectively.

For the past two years, the iShares ETF has been a losing trade between the final trading day in August and the end of the year, according to prices analyzed by Dow Jones Market Data. That's relatively atypical over recent history: over 16 years beginning in 2010, the fund has produced gains 11 times through the end of the year from the final day in August, the data show.

September itself is usually a tough month for the industry. Historically, the fund falls an average 1.4% in September, and an additional 0.8% in October before climbing from November through January, according to Dow Jones Market Data. Analysts refer to this gain as the "hope trade"-a period of time when the stocks often catch a second wind as investors look forward to the typically busy spring season in the year to come.

In spite of housing's doldrums, there is hope yet for the 2026 "hope trade," says UBS analyst John Lovallo, who covers builder stocks.

The past two spring selling seasons were marred by shocks that had little to do with housing specifically, Lovallo notes: in 2025, builder stocks slumped on fears about rising home prices from tariffs. This year, housing stocks had a promising start as mortgage rates fell sharply-until both reversed course in the wake of the war in Iran.

Three such macroeconomic shocks in a row isn't impossible, but the hope that spring 2027 will be relatively shock-free-combined with the analyst's conversations with investors that suggest "there is a growing sense that we are pretty darn close to a bottom"- could "set the stage for what could be a powerful November to January hope trade," Lovallo says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

This content was created by Barron's, which is operated by Dow Jones Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 01, 2026 16:34 ET (20:34 GMT)