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Key takeaways
- Shares of homebuilders rose on Friday after comments from a Federal Reserve official raised hopes for an interest rate cut in December.
- A lower central bank benchmark interest rate could lead to lower mortgage interest rates, which would help homebuyers and generate more revenue for homebuilders.
Investors are getting a big boost from rising expectations of interest rate cuts next month.
Homebuilder stocks were among the biggest gainers in the S&P 500 on Friday, after New York Fed President John Williams said at a conference that there was “room for further near-term adjustment to the target range for the federal funds rate,” raising hopes for a rate cut when the Fed next meets on Dec. 9-10.
Traders now expect about a 70% chance of a rate cut next month after the comments, up from 39% just yesterday, according to CME Group’s FedWatch tool, which is based on pricing federal funds rate futures.
Shares of Builders FirstSource (BLDR), DR Horton (DHI), and KB Home (KBH) rose nearly 7% on Friday as downgrade odds rose, while Lennar (LEN) added nearly 6%. PulteGroup (PHM) shares rose just over 5%. Other real estate-related stocks also rose, including Zillow Group (Z) and mortgage broker Rocket Companies (RKT).
Why is this important to you?
The Federal Reserve’s benchmark interest rate affects the cost of borrowing money from businesses, which in turn can affect the rates consumers pay on auto loans, mortgages and even credit cards. A lower federal funds rate could lead to lower mortgage rates, which could make homes more affordable for buyers.
However, many of these stocks, including Builders FirstSource, KB Home, Lennar, and Zillow, remain in negative territory for 2025. The housing market has been sluggish this year as mortgage rates remain high, leaving many buyers waiting on the sidelines for rates to decline, while others who bought a home in years when interest rates were lower are likely to stay put in order to hold on to their rates.
The prospect of lower interest rates next month would be a boon for homebuilders and other companies tied to the real estate market, as it would mean lower mortgage rates, which could help stimulate demand from homebuyers, leading to increased revenues for companies that make and sell homes.
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