US existing home sales fell 8.4% month on month in January. This followed a 5.1% rise in the previous month.
This sharp reversal to an -8.4% decline in January’s existing home sales signals significant weakness. This downturn is a direct response to persistently high financing costs, with the average 30-year fixed mortgage rate recently reported by Freddie Mac to be hovering near 6.8%. We see this as evidence that consumer affordability has reached a critical breaking point after a brief optimistic bump in late 2025.
Housing Equities Downside Positioning
Consequently, we are positioning for downside in housing-related equities over the coming weeks. We anticipate pressure on homebuilder ETFs like ITB and major retailers like Lowe’s (LOW). Purchasing put options on these names offers a direct way to capitalize on expected further declines in building and renovation activity.
This weak housing print significantly increases the probability of a more dovish Federal Reserve stance. With the effective Fed Funds Rate holding at 4.75% and core inflation still sticky at 3.1% in January, this report could be the catalyst the Fed needs to pivot towards rate cuts sooner than the market anticipates. Therefore, we are looking at going long on U.S. Treasury futures and buying calls on bond ETFs like TLT.
Looking back from 2025, we saw a similar sharp housing cooldown in late 2022 when mortgage rates first surged past 7%, which preceded a period of broader market choppiness. Given this historical precedent, we are also considering buying VIX call options. This move hedges against the increased economic uncertainty this housing data creates for the wider economy.
