The sharp decline in housing stocks on higher rates is way overdone, top analyst says

  • While the higher end of the housing market has softened, the lower end remains strong, Evercore ISI housing analyst Stephen Kim says.
  • He argues that stock valuations in the sector "look very attractive."
  • The Philadelphia Stock Exchange Housing Sector Index has dropped nearly 30 percent this year.

The sharp decline in housing stocks has been driven by investor fear that higher interest rates would "put the kibosh" on the real estate market, top housing analyst from Evercore ISI Stephen Kim told CNBC on Thursday.

The strong economy was "an enemy within" because although it benefited housing companies, it also drove rates up, Kim said on "Power Lunch."

"Over the summer, you actually began to see a slowdown brought on by the rates and so people said, 'Uh oh, here we go, it's basically over,'" Kim explained.

Reflecting that concern, the Philadelphia Stock Exchange Housing Sector Index, which tracks several housing-related stocks, has dropped nearly 30 percent this year.

However, Kim thinks the housing sell-off at this point is way overdone.

While the higher end of the market "has actually started to show some signs of weakening," the lower end remains strong, he said, arguing stock valuations in the sector "look very attractive."

Meanwhile, Wharton School real estate professor Susan Wachter told CNBC she is not as optimistic.

"On the luxury end, there is some easing off on prices but not at the entry level. There, the demand exceeds supply," she said. "So it's simply hard to get that product out at the price points which it would be affordable."

Wachter believes the housing market has peaked, saying buyers are going to dry up due to those higher home prices and climbing mortgage rates.

WATCH: Higher prices prevent millennials from being able to buy homes