How Housing Shifts Could Reshape Your Portfolio

Housing starts rose 12.9% in July compared with last year, well above expectations of just 2.8%.

The surge was led by apartment projects, which climbed 27.4% year over year as developers responded to strong rental demand.

Meanwhile, single-family starts remain 4.2% lower for the year, with builders hesitant to add supply in a market already burdened by affordability challenges and high inventories.

This is more than a one-month rebound. Apartment construction has risen steadily all year as consumers delay homeownership.

Renting is now cheaper than owning in all 50 of the largest U.S. metro areas, thanks to mortgage rates above 6.5% and record-high home prices.

At the same time, national rent growth is expected to recover later this year, giving developers confidence to secure financing for new projects.

For single-family homes, the story is weaker. High mortgage rates and tariffs on building materials have weighed heavily on costs.

Builder sentiment remains near decade lows, and oversupply from the low-rate building boom is still being worked off.

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Mortgage Rates Offer Hope But Not a Fix

The average 30-year mortgage slipped to 6.58%, the lowest since October 2024.

That triggered a jump in refinance applications and some optimism for a stronger fall selling season. But economists say rates need to drop below 6% before buyers truly come back in force.

Home inventories are now at their highest since 2007, with more than 511,000 new homes for sale.

Price growth has slowed to just 2% year over year, and several large cities are already posting outright declines.

While that helps cool the market, it does little to make homes affordable for the median household, which now needs $124,000 in income to afford a median-priced property, compared to $79,000 in actual median income.

Renting remains the default option, as elevated vacancies keep rent levels in check.

This is pressuring single-family builders but creating an entry point for multifamily REITs and rental-focused firms.

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Broader Housing Implications

The housing divide is spilling into the wider economy.

Small businesses tied to construction report higher costs for materials due to tariffs, and many worry about labor shortages if immigration enforcement tightens further.

Confidence among homebuilders has not improved despite the July data. Real estate stocks also continue to underperform.

The U.S. real estate index is still more than 10% below its 2022 peak, and the ratio of real estate to the S&P 500 is now at its lowest since 2000.

By contrast, the S&P 500 continues to push to record highs, underscoring how sector-specific risks are becoming.

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Investor Strategy

With housing breaking along two paths, investors need to be selective.

The opportunity lies in aligning portfolios with areas of resilience while avoiding segments that face structural headwinds.

Key ideas to consider now:

• Favor multifamily exposure: Demand for rentals continues to rise as affordability keeps buyers sidelined. Multifamily REITs stand to benefit.

• Be cautious with single-family builders: Oversupply, high costs, and weak sentiment suggest more pain before recovery.

• Look for stable cash flow generators: Utilities and defensive consumer names provide stability as housing volatility continues.

• Watch mortgage rate trends closely: A move below 6% could change the outlook quickly, especially for home improvement and consumer discretionary names.

• Track regional differences: Midwest housing shows relative affordability and strength, offering a brighter spot compared to coastal markets.