Homebuilders are heating up
Excitement about Fed cuts is boosting the highly rate-sensitive industry.
Share prices for homebuilders are surging amid growing certainty that the Fed has vanquished inflation and rate cuts are on the way.
As Luke’s been writing, this is boosting excitement all over the markets, especially in the world of small capitalization stocks. But it’s especially welcome in the world of home construction, where Fed interest rates — and the mortgage rates that they help to set — are a key driver of activity.
Lower rates would not only help entice buyers back into the market, they could also offer some relief on the costs to homebuilders who have been forced to offer costly promotions like “rate buydowns” to entice would-be buyers, who might be turned off by mortgage rates that continue to hover around 7%, to pull the trigger.
That seems to be the reading from the stock market. Where share prices have made some fairly massive moves leaving some homebuilders at never-before-seen elevations. (PulteGroup, KB Home and Toll Brothers, for example, finished the day at an all times high.)
For the record, it’s possible traders are far too sanguine about a recovery in the sector, especially as surveys such as the National Association of Home Builders reading for July, released Tuesday, show very little in the way of actually optimism from the builders themselves.
But maybe the market — which we’re always told is “forward-looking” — knows something the hardhats don’t.
