US pending home sales fell 1.1% year on year in March. This followed a 0.8% year-on-year fall in the previous reading.
The year-over-year decline in March pending home sales to -1.1% suggests the housing market is losing momentum again. Persistently high mortgage rates, which we see are currently averaging around 6.8% for a 30-year fixed loan, are likely the primary cause for this cooling. This reversal indicates that consumer affordability remains stretched.
We should look at this as a clear signal to consider bearish positions on housing-related equities. Purchasing put options on homebuilder ETFs, like ITB or XHB, for the coming weeks could prove effective. This data serves as a leading indicator for weaker earnings and reduced forward guidance from these companies.
This slowdown complicates the Federal Reserve’s position, especially as the latest inflation report showed CPI still sticky at 3.1%. This growing divergence between a slowing economy and stubborn inflation may lead the market to price in a higher probability of a policy pivot later this year. Consequently, call options on long-duration Treasury ETFs like TLT may offer a valuable hedge against this economic slowing.
The conflicting economic signals are a recipe for increased market volatility. With the VIX currently hovering near multi-month lows around 14, now is a relatively cheap time to purchase protection. We believe buying call options on the VIX or protective puts on broad market indices is a prudent move.
Looking back, this trend is particularly noteworthy when we remember the brief recovery in home sales we saw during the second half of 2025. That period of optimism now appears to have been temporary, with this recent data confirming that the restrictive rate environment is taking a deeper hold. It supports the view that weakness in interest-rate-sensitive sectors will persist.
