Askume, Sept 19 – Shares of major U.S. homebuilding companies rose in early trade on Thursday as the Federal Reserve’s interest rate cutting cycle is expected to put downward pressure on mortgage rates and boost demand for new homes.
DR Horton ( DHI.N ) Lennar ( LEN.N ) , PulteGroup ( PHM.N ) and Toll Brothers ( TOL.N ) rose roughly 1% to 3%. Lennar is scheduled to report quarterly earnings later today.
The Federal Reserve on Wednesday introduced the first of an expected series of rate cuts, each half a percentage point larger than usual, which is expected to further reduce mortgage rates and attract buyers in the coming months.
Shares of home improvement chains Home Depot (HD.N) and Lowe ‘s (LOW.N) rose more than 1% on Thursday.
Lower financing costs could also boost homebuilding activity, easing the long-term housing shortage that has grown since the 2008 financial crisis.
The central bank raised interest rates to a range of 5.25%-5.50% between 2022 and 2023 to tame high inflation that is slowing the housing market, but mortgage rates fell as the Federal Reserve signaled a rate cut.
The average 30-year fixed-rate mortgage rate has recently dropped to 6.20%, down from nearly 8% just a few months ago, according to Freddie Mac.
The Fed’s rate cut could lower mortgage rates as well as lending rates for land development and home construction companies, NAHB chief economist Robert Dietz said in a recent report .
“Reducing construction costs is critical to addressing the current housing affordability challenges.”
Shares of homebuilding companies have surged recently. Year to date, the S&P 500 home manufacturing index (.SPLRCHOME) has gained more than 30%, while the S&P 500 index (.SPX) has gained 17%. This has fueled expectations of further interest rate cuts and easing of mortgage rates.
“We believe homebuilding company stocks and mortgage rates are already anticipating a rate cut after rising in recent months,” Bank of America analysts said in a note.
