The Mortgage Rate Tightrope: Construction and Utilities in a High-Cost Era

The U.S. MBA 30-Year Fixed Mortgage Rate, now at 6.805% as of July 2025, has become a pivotal barometer for investors navigating the crossroads of housing and energy markets. This rate—up 400 basis points from its 2020 pandemic lows—has created a divergent landscape for construction and utilities sectors, each reacting to the same monetary policy levers in starkly different ways. For investors, understanding these dynamics is critical to unlocking opportunities while mitigating risks in an era of prolonged high borrowing costs.

Construction: A Sector on the Back Foot, But Not Broke

The construction industry has borne the brunt of the Federal Reserve's rate hikes. Single-family housing starts, once a roaring 1.5 million annually in 2021, have slumped to 1 million by 2025, with multifamily construction down 29% year-over-year. The 30-year mortgage rate's climb to 7.08% in late 2023 froze demand for new homes, particularly among first-time buyers, who now require $130,000 in income to qualify for a median-priced home. This has left contractors and suppliers in a lurch, with building materials firms like Lennar (LEN) and D.R. Horton (DHI) seeing profit margins erode as project delays and cancellations mount.

Yet, the sector is not without hope. Historical data reveals a clear pattern: when mortgage rates fall below expectations, the Building Materials sector outperforms by an average of +7% over 28 days. highlights this inverse relationship. While the current 6.88% rate remains a drag, the Federal Reserve's recent 100-basis-point easing in 2024 has sparked optimism. If rates continue to trend downward in 2025, construction firms with strong balance sheets and exposure to infrastructure projects (e.g., those benefiting from the Inflation Reduction Act) could see a rebound. Investors should focus on companies with diversified revenue streams, such as Kraft Heinz (KHC) in food infrastructure or Macy's (M) in retail real estate, to hedge against sector-specific volatility.

Utilities: Resilience in a High-Rate World

While construction reels, the utilities sector has demonstrated surprising resilience. The S&P Utility Index has outperformed the S&P 500 in three of the past four years, including a 4.9% gain in Q1 2025 compared to the market's -4.3%. Regulated utilities, in particular, have thrived on stable demand and rate base growth. Electric and gas utilities have benefited from the electrification boom, with data centers and EV charging infrastructure driving 9% earnings growth in 2024.

However, the sector is not immune to mortgage rate-driven headwinds. Gas utilities have underperformed during periods of rate declines, as homeowners shift to smaller, energy-efficient homes. shows a -5% average decline over 42 days following unexpected rate drops. This underscores a structural risk: as housing demand evolves, traditional utility models face pressure from declining per-household consumption and the rise of distributed energy resources (DERs).

Investors should favor utilities with exposure to long-term infrastructure tailwinds, such as NextEra Energy (NEE) in renewables or Dominion Energy (D) in gas-to-green hydrogen transitions. Defensive plays like Southern Company (SO) remain attractive for their stable dividend yields, but those seeking growth should tilt toward firms leveraging IRA tax credits for clean energy projects.

Actionable Strategies for 2025 and Beyond

1. Sector Rotation in Construction: Overweight building materials and construction services during rate dips. The projected 3% annual housing price rise and 1.15 million single-family home starts in 2025 suggest a floor for demand.
2. Utility Hedging: Underweight gas utilities during periods of falling rates. Instead, allocate to regulated electric utilities and renewable energy infrastructure, which align with electrification trends.
3. Policy Arbitrage: Capitalize on government-driven tailwinds. The IIJA and IRA have unlocked $1.2 trillion in infrastructure spending, with construction and energy firms like Martin Marietta Materials (MLM) and Brookfield Renewable (BEP) poised to benefit.

Conclusion: Navigating the Mortgage Rate Maze

The 30-year mortgage rate is no longer just a housing market metric—it's a linchpin for sector performance. While construction faces affordability headwinds, the sector's exposure to policy-driven infrastructure spending offers a counterbalance. Meanwhile, utilities must adapt to shifting consumption patterns and energy transition pressures. For investors, the key lies in balancing cyclical construction plays with defensive utility positions, all while keeping a close eye on the Fed's next move. As mortgage rates stabilize, the winners and losers in this high-cost era will be determined not by the rate itself, but by how well companies—and investors—adapt to its implications.