From Buyers to Builders: Assessing the U.S. Housing Market

What It Covers

PGIM credit analysts examine US housing market dynamics as mortgage rates decline from seven percent to low sixes, home price growth slows, regional inventory imbalances emerge, and structural undersupply persists despite affordability challenges constraining buyer activity.

Key Questions Answered

• •Regional inventory divergence: National housing supply returns to pre-COVID levels, but Northeast and Midwest remain constrained while Sun Belt markets like Florida and Texas show excess inventory, creating a shift from seller's to buyer's market conditions in overbuilt regions.
• •Debt-to-income pressure: Recent mortgage originations show borrowers carrying 40-plus percent debt-to-income ratios, approaching the 50 percent lending threshold, indicating genuine affordability crisis prevents qualified buyers from entering market despite available inventory in certain areas.
• •Builder incentive strategy: Home builders use rate buydowns as primary sales tool, offering 4.99 percent financing when market rates hit seven percent, creating competitive advantage over existing home sales where sellers cannot provide similar financing incentives to overcome affordability barriers.
• •Rate threshold for activity: Mortgage rates need to reach low-five percent range, requiring 100 basis points of cuts from current levels, to meaningfully change buyer psychology and unlock demand, as borrowers have adjusted expectations away from two-to-three percent rates.