Mortgage Rates are Finally Falling. How to Invest in That.
Mortgage Rates are Finally Falling. How to Invest in That.
Matthew Benjamin, The Motley FoolWed, February 25, 2026 at 5:10 PM UTC
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Key Points -
Mortgage rates just fell to the lowest level since September 2022.
At the same time, there's a huge shortage of housing supply.
Homebuilder stocks look poised to rise on strong demand.
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After remaining below 4% for several years, mortgage rates began rising in 2022 and have remained uncomfortably high -- in the 6% to 7% range -- for several years.
That's created multiple problems for the ailing U.S. housing market. It's made a home purchase unaffordable for many Americans. It has also caused many homeowners to avoid selling their homes out of fear that they wouldn't be able to replicate the low rate they've enjoyed for years -- essentially locking them, and the wider housing market, in place.
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Now, however, it looks as if rates are finally beginning to decline in a significant way. Last week, the average 30-year, fixed-rate mortgage rate fell to 6.01%, the lowest level since September 2022.
Outline of a house riding a stock chart higher.
Image source: Getty Images.
Mortgage rates should drift even lower, as the Federal Reserve is poised to cut rates several more times this year. Futures markets are currently pricing in at least two quarter-percentage point cuts by the end of 2026, and possibly more. President Donald Trump has been pushing the Fed to cut its benchmark rate more quickly, and his new nominee for Fed Chair, Kevin Warsh, has voiced support for lower rates.
Of course, mortgage rates are more closely tied to the 10-year Treasury yield, but that too has been falling. From a recent peak of 4.76% in January 2025, the 10-year yield is now down to about 4.1%. As a result of falling mortgage rates and rising affordability, homebuilder stocks are hot right now.
The iShares U.S. Home Construction ETF (NYSEMKT: ITB), which includes stocks of homebuilders and related companies, is up 11.8% since the beginning of the year. Lennar (NYSE: LEN) is up 10.3% in 2026, D.R. Horton (NYSE: DHI) is up 12%, and PulteGroup (NYSE: PHM) has climbed 17.4%. Compare those gains to the broader S&P 500 index, which is down 1% for the year so far.
There is strong demand for new homes
There's pent-up demand for the homes that these companies are building. There's been a national housing shortage since building slowed after the Great Financial Crisis of 2007-2009. As a result, Goldman Sachs estimates that at least 3 to 4 million additional homes -- beyond normal construction levels -- need to be built to address the shortage.
Plus, home prices have risen while mortgage rates remained high, making homes generally less affordable. Economists point to several causes for the crisis in housing affordability, from government policies that have restricted new building and housing supply to slower wage growth that has suppressed demand.
From 2000 to 2024, house price growth far surpassed median income growth in the U.S., according to the Federal Reserve. And home prices rose 50% from before the pandemic through last November.
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The Trump administration is promoting housing
For its part, the Trump administration has been searching for ways to address housing affordability issues. President Trump has promoted several ideas, including government purchases of mortgage-backed securities to push rates lower and a ban on institutional investors buying single-family rental homes. It's far from clear that any of those initiatives will be effective.
Yet, homebuilding firms are looking to cooperate. Media reports say that Lennar is working on a plan to build as many as 1 million entry-level homes across the country and allow buyers to rent them first before purchasing. That plan, too, is murky and far from a done deal.
But all that said, it does seem clear that builders that can provide new homes will see demand match whatever supply they can offer.
Of the builders listed above, Pulte may be best positioned right now to benefit from lower rates and the higher demand for new homes that could result from them, as it has strong exposure to first-time borrowers, which has has been a troubled part of the market that now has lots of upside potential.
Of course, there are downside scenarios, too. If the economy contracts or consumers slow spending, that will negatively impact the housing market. But at the moment, those don't look likely, so homebuilder ETFs and stocks look like a good deal.
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Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends D.R. Horton and Lennar. The Motley Fool has a disclosure policy.
Source: “AOL Money”
