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  • Housing Got A Bounce. Affordability Is Still The Ceiling.

Housing Got A Bounce. Affordability Is Still The Ceiling.

Home sales jumped in May, but high prices and volatile mortgage rates still cap the recovery.

June 10, 2026

The housing market finally showed some life. Existing-home sales rose 3.2% in May to a 4.17 million annual rate, the biggest monthly increase this year and well above expectations.

Lower mortgage rates in April and more inventory helped bring buyers back, but this is still a fragile rebound.

Sales are barely above last year’s pace, mortgage rates are back near 6.5%, and affordability remains the biggest obstacle.

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The Spring Market Finally Woke Up

After a slow start to the spring selling season, May delivered the first real positive housing surprise of the year.

Existing-home sales rose 3.2% from April to a seasonally adjusted annual rate of 4.17 million. That was the biggest increase since December and well ahead of the 0.7% gain economists expected.

That matters because housing has spent the past three years stuck in a low-transaction slump.

Buyers have been cautious, sellers have been locked into low mortgage rates, and affordability has been a constant problem. For one month, at least, the market showed that demand has not disappeared.

It is still there.

The key was a short window of better affordability. Mortgage rates declined in April, and that helped buyers move forward with May purchases.

Inventory also improved, giving buyers more choice and reducing the urgency that defined the pandemic-era market.

That combination matters.

Housing does not need perfect conditions to improve. It needs slightly better monthly payment math and enough inventory to make buyers feel like the search is worth it.

May gave the market both.

Buyers Are Ready, But They Are Still Rate-Sensitive

The rebound confirms something important: buyers are not permanently gone.

They are waiting for the math to work.

When mortgage rates eased, sales picked up. That tells us the housing market still has pent-up demand. People still want to move.

Families still need more space. Renters still want to buy. Downsizers still want to relocate. Life events still happen.

But demand is trapped behind affordability.

Mortgage rates were around 6.5% last week, and the market is extremely sensitive at that level. If rates can move closer to 6%, sales can keep improving. If rates rise toward or above 6.5%, the recovery stalls again.

That is the key line for investors.

Housing is not being held back by a lack of interest. It is being held back by payments. Buyers are watching every move in rates because a few tenths of a percentage point changes what they can afford.

That makes the housing recovery fragile. A good month helps. A sustained recovery needs mortgage rates to stay lower for longer.

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This Is Still A Three-Year Slump

The May number was strong, but the longer view is still weak.

Existing-home sales are up just 0.7% in the first five months of 2026 compared with the same period in 2025. That is not a breakout. That is a market still trying to crawl out of a deep slump.

This is why investors should avoid getting too excited.

One good monthly print does not erase three years of low transaction volume.

Real-estate agents, mortgage lenders, title insurers, home-improvement retailers, and housing platforms still need a much larger and more durable pickup before the sector feels healthy again.

The recovery needs repeat evidence.

May showed that buyers respond when conditions improve. Now the market needs June, July, and August to confirm this was more than a temporary rate-driven pop.

The risk is that May was pulled forward by a brief window of lower mortgage rates, while rates rising again in May starts to pressure future activity.

That is the whole housing question now.

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Affordability Is Still The Ceiling

The housing market’s biggest problem has not changed.

Homes are still expensive.

The national median existing-home price rose to $429,300 in May, up 1.3% from a year earlier and the highest median price ever recorded for the month of May. Prices are still rising nationally because inventory remains below prepandemic norms.

That is a tough setup for buyers.

According to Intercontinental Exchange, for affordability to return to long-term average levels from where it stood in May, mortgage rates would need to fall below 5%, home prices would need to drop 16%, or incomes would need to rise 19%.

That is the clearest way to understand the problem.

The market does not need one small improvement. It needs a major affordability reset.

And right now, it is not getting one. Mortgage rates are still too high. Prices are still too high. Incomes are rising, but not enough to close the gap quickly.

This is why the May bounce should be respected, but not overhyped.

Housing has momentum. It does not have affordability solved.

Inventory Is Improving, But The Market Is Uneven

The supply picture is getting better.

The number of homes for sale rose 3.3% from April and 0.6% from May 2025. That helped bring buyers back because they had more options and more negotiating power.

But inventory is still below prepandemic levels nationally, which keeps prices supported in many markets.

The regional split is also important. Prices fell year over year in 28 of the 100 biggest metro areas in May, including many Texas and Florida markets. That tells us the national housing market is becoming more fragmented.

Some markets are still tight. Others are softer. Some sellers still have leverage. Others are cutting prices and offering concessions.

That creates opportunity, but it also raises the bar for stock selection.

Broad housing exposure is less attractive than targeted exposure. Companies with national scale, good inventory discipline, and stronger exposure to affordability-sensitive buyers have the better setup.

Companies tied to overheated markets, luxury demand, or pure transaction volume still need more evidence.

The Fed Is Still A Risk To Housing Momentum

The housing rebound also runs straight into the Fed problem.

Mortgage rates rose in the spring after the Iran war boosted inflation concerns. A stronger-than-expected jobs report also raised expectations that the Fed may need to keep rates higher or even consider another hike.

That is not what housing wants.

Housing needs the Fed and bond market to calm down. It needs inflation expectations to ease. It needs the 10-year Treasury yield to stop pressuring mortgage rates.

It needs buyers to believe that today’s payment is not going to look foolish next month.

If inflation stays sticky and the Fed sounds more hawkish, mortgage rates stay elevated. That weakens the recovery before it has time to build.

So the housing market is not just about housing data anymore. It is about inflation, jobs, oil, the Fed, and bond yields.

May was encouraging. The macro backdrop is still a headwind.

Actionable Stuff

Respect The Bounce

A 3.2% sales increase shows buyers will come back when rates and inventory cooperate.

Do Not Call It A Recovery Yet

Sales are up just 0.7% through the first five months of the year. That is still a sluggish market.

Watch Mortgage Rates First

Near 6%, housing improves. Near 6.5% or higher, buyers get cautious again.

Favor Scale And Affordability

The best housing plays are companies that can use scale, incentives, and lower price points to keep buyers engaged.

Be Careful With Transaction-Only Names

Mortgage lenders, brokers, and title insurers need sustained volume, not one good month.

Top Picks

D.R. Horton (NYSE: DHI)

D.R. Horton remains one of the cleaner ways to play a housing thaw.

The company’s scale and focus on affordable entry-level and move-up homes matter in this market. Buyers are still payment-sensitive, so builders that can offer value, incentives, and financing support have an advantage.

D.R. Horton does not need a luxury boom. It needs household formation, limited existing-home supply, and buyers who can be pulled back in when monthly payments improve.

May’s sales rebound supports that thesis. Demand is there when affordability gets slightly better. D.R. Horton is positioned to capture that demand more effectively than smaller builders with less pricing flexibility.

This is not a risk-free housing call. If rates climb again, orders can soften. But among builders, D.R. Horton has the right mix of scale, affordability exposure, and operating discipline.

What to watch: Net orders, cancellation rates, incentives, gross margins, and buyer response if mortgage rates move back toward 6%.

Lennar (NYSE: LEN)

Lennar also fits this market because it has the balance sheet, scale, and flexibility to keep moving inventory.

In a market where buyers are cautious, builders need to be aggressive but disciplined. Lennar can lean on pricing, incentives, rate buydowns, and community mix to keep demand moving without relying on a national housing boom.

The existing-home market still has inventory constraints, which helps large builders.

If buyers cannot find the right resale home, they may turn to new construction, especially when builders can offer financing support that individual sellers cannot match.

That makes Lennar a practical housing recovery pick. It benefits from any thaw in demand, but it also has tools to compete when affordability remains tight.

What to watch: Delivery pace, gross margins, incentive use, community count, and management commentary on buyer traffic.

Zillow Group (NASDAQ: Z)

Zillow is the higher-beta pick for a housing market that is starting to show signs of life.

The business is tied to housing activity, agent advertising, consumer search, and transaction-related demand.

That makes it more sensitive than the builders if the market stalls. But it also gives Zillow strong upside if the May rebound turns into a sustained pickup.

The thesis is simple: more buyers searching, more sellers listing, and more transactions improve the value of Zillow’s platform.

Rising inventory also helps because buyers have more reason to browse and agents have more reason to compete for leads.

This is not the defensive pick. It is the recovery-leverage pick.

If mortgage rates stay near 6.5%, Zillow remains vulnerable. If rates drift closer to 6% and transaction activity improves, the stock has a much cleaner path.

What to watch: Traffic trends, Premier Agent revenue, listings inventory, transaction activity, and management commentary on buyer engagement.

Home Depot (NYSE: HD)

Home Depot remains the steadier housing-adjacent pick.

A better home-sales market helps move-related spending, but Home Depot does not need a full housing recovery to work. Homeowners still repair, maintain, and improve their homes. Contractors still need supplies.

And if many owners remain locked into low mortgage rates, they may keep investing in their existing homes instead of moving.

That makes Home Depot a good balance between housing exposure and defensive demand.

The stock will benefit if housing activity improves, but it is not as dependent on transaction volume as lenders, brokers, or title companies.

That makes it useful in a market where the rebound is real but still fragile.

What to watch: Comparable sales, Pro demand, big-ticket transactions, repair-and-maintenance trends, and any pickup in move-related categories.

Bottom Line

The Big Takeaway

Housing finally posted a strong monthly gain.

What It Means

Lower rates and more inventory brought buyers back in May, showing demand is still alive. But high prices, volatile mortgage rates, and weak affordability keep the recovery fragile.

How To Play It

Own the scalable housing names that benefit if activity improves but can survive if the rebound stays uneven.

Favor large builders, selective housing platforms, and repair-driven retailers. Avoid assuming one strong month means housing is fully back. It is thawing, not healed.

That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.

Best Regards,
—Noah Zelvis
Macro Notes