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Cotality’s chief economist Selma Hepp warns the 30-year fixed mortgage rates could spike to 9% if inflation reaccelerates and growing fiscal deficit drive long-term US Treasury yields up further.
While not her base case, Hepp emphasized in a recent CNBC interview that such an “extreme” rate environment will severely paralyze housing activity, deepening the affordability crisis and freezing existing inventory as homebuyer demand collapses.
According to experts, such a backdrop could hit the following three stocks the hardest.
D.R. Horton (DHI)
As America’s largest homebuilder by volume, D.R. Horton stock is directly exposed to homebuyer affordability limits.
Over recent years, homebuilders maintained sales momentum by offering costly interest rate buy-downs and price incentives to attract buyers.
However, if benchmark mortgage rates approach 9%, funding effective rate concessions becomes economically unsustainable without severely eroding profit margins.
High mortgage rates shrink the pool of qualified entry-level buyers – DHI’s major demographic – while skyrocketing monthly payments force prospective purchasers to postpone buying altogether.
With land acquisition and construction costs remaining elevated, a material contraction in closings combined with margin compression would severely pressure D.R. Horton’s sales and bottom-line growth.
Wall Street analysts currently have a consensus Hold rating on DHI shares.
Zillow Group (Z)
Zillow’s core business model relies heavily on transaction velocity within the residential real estate market.
The platform generates significant revenue through its Premier Agent program, which charges real estate agents for buyer leads, and adjacent services like mortgage origination and title processing.
A 9% mortgage rate environment would lock existing homeowners into their existing “low-rate” mortgages, drastically restricting existing home inventory.
Simultaneously, prospective buyers would be priced out of the market.
This dual contraction in buy-side and sell-side activity directly curbs transaction volumes, reducing real estate agents’ marketing spend on Zillow’s platform and severely hindering revenue across its high-margin marketplace services.
That said, Wall Street analysts currently rate Zillow stock at Overweight on average, with a nearly $46 mean price target indicating massive upside potential from here.
Home Depot (HD)
Home Depot stock relies heavily on a healthy housing turnover rate and home equity extraction to drive large-ticket home improvement spending.
When mortgage rates hit 9%, housing turnover drops precipitously, reducing the demand for pre-sale repairs and post-purchase home renovations.
Additionally, high interest rates discourage homeowners from securing home equity lines of credit (HELOCs) or cash-out refinancings, which traditionally finance major remodeling projects like kitchens and bathrooms.
While basic maintenance demand provides a baseline floor, discretionary spending on “big-ticket” structural renovations would slow considerably – creating prolonged top-line headwinds for the home improvement giant.
Wall Street currently has a consensus Overweight rating on HD shares, with the mean price target of about $380 indicating potential upside of more than 30% from here.
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