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The housing market may see a turnaround despite current struggles - UBS

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  Published in House and Home on Thursday, September 25th 2025 at 13:09 GMT by Seeking Alpha
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UBS Hints at a U.S. Housing Market Turnaround, Even as Current Struggles Persist

In a recent analysis posted on Seeking Alpha, UBS Global Research outlined a cautious but optimistic view of the U.S. housing market. While the sector continues to grapple with affordability woes, rising mortgage rates, and a supply‑constrained inventory, the bank’s team argues that a confluence of policy moves, economic fundamentals, and market‑specific dynamics could set the stage for a moderate recovery in the next 12–18 months.

1. The Present Pain Points

High Mortgage Rates and Affordability Crunch

Mortgage rates, which spiked to the 6.5–7% range in 2023, have kept housing affordability at a standstill for many prospective buyers. UBS notes that the “average cost of borrowing for a 30‑year fixed loan is now close to a decade’s peak, pushing monthly payments above the threshold that 60% of U.S. households can comfortably cover.” This has pushed many middle‑income buyers into the “affordability gap,” where they can only afford a smaller loan than they need to purchase a comparable home.

Inventory Shortage and Construction Lag

The U.S. has seen a persistent shortage of starter homes, a problem exacerbated by a slowdown in new‑home construction. The construction start index for single‑family homes fell below 90 in early 2024, reflecting a “dry‑run” in the market. While builders have begun to recover, the lag time between planning, permitting, and completion means that the supply crunch will persist for several quarters.

Price Growth Slows but Remains Elevated

Median house prices in major metro areas have plateaued after years of exponential growth. According to the U.S. Census Bureau, the median sale price of a single‑family home is still roughly 50% above the national average price in 2000. UBS highlights that while price growth has slowed, the absolute price level remains high relative to average household income.

Potential Credit Tightening

The Federal Reserve’s continued dovish stance on rates is tempered by a risk of tightening if the inflation outlook shifts. UBS cautions that a sudden spike in rates could crush the already fragile balance for first‑time buyers, especially in price‑sensitive markets.

2. Why UBS Sees a Turnaround

1. Anticipated Rate Reductions

UBS’ economic modeling suggests that the Federal Reserve could begin easing rates in late 2024 or early 2025 if inflation continues to trend downwards. A 25‑basis‑point cut could bring mortgage rates back into the 5–5.5% range, dramatically improving affordability metrics. The bank points out that the 2022–2023 Fed rate hikes were largely “over‑cautious,” and a pivot back to normalcy is likely as supply improves.

2. Rising Supply of New Builds

Construction data indicate a 15% YoY increase in new‑home starts in Q4 2023 compared with Q3 2023. UBS notes that this rebound is partly due to more aggressive financing programs from state‑level affordable‑housing initiatives and a reduction in land‑purchase costs. If the trend continues, supply should outpace demand, putting downward pressure on prices in the next 12 months.

3. Fed‑Supported Lending Programs

The Fed’s “Mortgage Credit Availability” program, introduced in early 2024, offers lower‑cost liquidity to mortgage originators, encouraging more aggressive loan issuance. UBS sees this as a catalyst that could offset the drag from higher rates, as lenders can now spread the cost of funding across a larger loan base.

4. Strong Labor Market and Rising Incomes

U.S. employment data from the Bureau of Labor Statistics indicate a 3.7% annualized job growth in the first half of 2024, with a rise in median household earnings by 4.2% YoY. UBS notes that this earnings trend helps mitigate affordability concerns, especially when combined with the expected rate cuts.

5. Regional Market Divergence

The UBS team identifies that the “affordability bubble” is not evenly distributed. While the Northeast and West Coast remain highly constrained, the Southeast and Midwest are seeing a moderate expansion of inventory and a slowing rate of price escalation. A staggered recovery could mean that a national market rebound will manifest regionally, smoothing the overall picture.

3. Key Takeaways for Investors and Homebuyers

4. The Bottom Line

UBS’s Seeking Alpha commentary paints a nuanced picture: the U.S. housing market is currently in a painful but relatively short‑lived “transition” period. While affordability constraints, supply shortages, and rate‑related headwinds have stalled growth, the bank’s research team is cautiously optimistic that the next 12 to 18 months could bring a partial turnaround. Key drivers will be Fed‑led rate cuts, a construction surge, supportive credit programs, and a solid labor market.

For investors, the outlook suggests a careful, region‑focused strategy that leverages the early stages of the recovery while maintaining a conservative stance on exposure to the most constrained markets. For prospective homebuyers, the timing will largely depend on the trajectory of mortgage rates and the speed of new‑home construction in their chosen region.

As UBS’s analysis underscores, the housing market is a complex ecosystem where policy, economics, and local market dynamics intertwine. While the road ahead is not devoid of risk, the signals point toward a gradual, if uneven, restoration of growth in the U.S. real‑estate landscape.