U.S. existing home sales fell 8.4% month over month in January, after rising 5.1% the month before.
This sharp move to an 8.4% drop in January points to clear weakness in housing demand. The main driver is still high borrowing costs. Freddie Mac recently reported the average 30-year fixed mortgage rate near 6.8%. In our view, affordability is now stretched to the limit after a short-lived lift in sentiment in late 2025.
Housing Equities Downside Positioning
As a result, we are positioning for downside in housing-related equities in the coming weeks. We expect continued pressure on homebuilder ETFs such as ITB and on major home improvement retailers like Lowe’s (LOW). Buying put options on these names is a straightforward way to benefit if building and renovation activity weakens further.
This soft housing report also raises the odds that the Federal Reserve turns more dovish. The effective Fed Funds Rate is still 4.75%, while core inflation remains sticky at 3.1% in January. This data could give the Fed more reason to start cutting rates sooner than markets expect. Because of that, we are considering long positions in U.S. Treasury futures and call options on bond ETFs like TLT.
A similar pattern appeared in late 2022, when mortgage rates first moved above 7% and housing cooled quickly. That period was followed by broader market volatility. With that backdrop, we are also looking at VIX call options to hedge against rising uncertainty spilling into the wider economy.
Volatility Hedge Considerations
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