Homebuilder Stocks Rise as Fed Rate Cut Looks Good for Mortgages

Key Takeaways

• Homebuilders shares rose after the Fed announced a 50 basis point interest rate cut Wednesday.
• Bank of America increased its price target for seven homebuilders by an average of 11%.
• Lennar will report earnings after the bell Thursday, with KB Home reporting next week.

Homebuilder stocks are rising a day after the Federal Reserve kicked off its rate-cutting cycle, lowering the benchmark rate by half a percentage point.

A lower federal funds rate exerts downward pressure on mortgage rates, which are a bit below 6%. That has helped lift shares of homebuilders such as KB Home (KBH), Smith Douglas Homes (SDHC), and Lennar Corporation (LEN) higher Thursday.

Bank of America analysts are bullish on the sector, raising their price targets for seven homebuilding companies by an average of 11%. The biggest boost went to KB Home, which had its price target bumped 20% to $90 from $75. Shares of the Los Angeles-based company rose about 3% Thursday.

Lower mortgage rates should drive more housing demand, the analysts wrote in a note Thursday, which should in turn improve sales and margins for homebuilders. Additionally, homebuilders have done a better job at returning capital to shareholders.

Lennar is expected to report earnings after the bell today. KB Home will report on Sept. 24.

August existing-home sales fell, according to fresh data.

Read the original article on Investopedia.

Impact of the Fed Rate Cut

The recent rate cut by the Federal Reserve has had a positive impact on homebuilder stocks. The Fed lowered the benchmark rate by half a percentage point, which has resulted in a decrease in mortgage rates. With mortgage rates now below 6%, potential homebuyers are more likely to enter the market, leading to increased demand for new homes.

Homebuilders such as KB Home, Smith Douglas Homes, and Lennar Corporation have seen their stock prices rise as a result of the rate cut. This increase in stock prices has caught the attention of analysts at Bank of America, who have raised their price targets for seven homebuilding companies by an average of 11%. KB Home, in particular, has received a significant boost, with its price target being increased by 20% to $90 from $75.

The analysts at Bank of America believe that lower mortgage rates will not only drive housing demand but also improve sales and margins for homebuilders. They also note that homebuilders have been successful in returning capital to shareholders, making them an attractive investment option.

Earnings Reports

Lennar Corporation is expected to report its earnings after the bell today, providing further insight into the performance of the homebuilding sector. Investors will be closely watching these earnings to gauge the impact of the rate cut on Lennar’s financials and to assess the overall health of the industry.

KB Home, another major player in the homebuilding industry, is set to report its earnings on September 24. This report will provide additional information on the sector’s performance and may further influence investor sentiment.

August Existing-Home Sales

Despite the positive impact of the rate cut, fresh data shows that existing-home sales in August fell. This unexpected decline raises questions about the overall strength of the housing market and suggests that there may be other factors at play.

It will be important to monitor future data releases and earnings reports to gain a clearer understanding of the housing market’s trajectory and the true impact of the rate cut.

In conclusion, the recent rate cut by the Federal Reserve has had a positive effect on homebuilder stocks. Lower mortgage rates have increased housing demand and boosted the stock prices of companies such as KB Home, Smith Douglas Homes, and Lennar Corporation. Analysts at Bank of America are optimistic about the sector’s prospects and have raised their price targets for several homebuilding companies. However, the decline in August existing-home sales raises concerns about the overall strength of the housing market. Investors will be closely watching earnings reports and future data releases to assess the true impact of the rate cut and the health of the industry.