US housing shares shine as Fed restarts rate cuts

By Lewis Krauskopf

NEW YORK (Reuters) – As the U.S. Federal Reserve restarts interest rate cuts, housing shares are one of the areas of the stock market that may benefit, and they have perked up in recent weeks as markets priced in more monetary easing.

On Wednesday, the U.S. central bank lowered its benchmark rate for the first time since December and indicated more cuts would follow as it tries to shore up a shaky labor market.

The Fed’s move stands to help interest-rate sensitive areas such as small-cap and consumer discretionary shares. Homebuilder stocks could also benefit if monetary easing translates into lower mortgage rates and more robust economic activity that helps the struggling housing sector, investors said.

“The Fed is rebooting the easing cycle,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. “If we think about areas that may stand to benefit from that… homebuilders is one of them.”

The S&P 500 ended on Thursday at record high levels, up nearly 13% on the year, after the Fed cut its benchmark rate by a quarter of a percentage point to the 4-4.25% range.

Some investors hope the restart of monetary easing will boost economically sensitive stocks, broadening market leadership beyond the megacap technology companies that have driven indexes higher.

The PHLX Housing index has jumped more than 16% so far this quarter, against a roughly 7% gain for the S&P 500 (^GSPC), although the housing gauge still trails the benchmark stock market index on a year-to-date basis.

Big gainers this quarter include DR Horton (DHI), up over 30%, and KB Home (KBH) and Toll Brothers (TOL), both up over 20%. Home improvement retailers Lowe’s (LOW) and Home Depot (HD)are up about 21% and 14% so far in the quarter.

The Mortgage Bankers Association said this week that the contract rate on a 30-year, fixed-rate mortgage fell to 6.39% in the week ended September 12, the lowest since early October 2024, while analysts at Keefe, Bruyette & Woods projected that the mortgage rates could approach 6% by year-end.

The Fed’s move to lower interest rates comes amid signs of struggle in the housing market. U.S. single-family homebuilding plunged to a near 2-1/2-year low in August, data on Wednesday showed. Fed Chair Jerome Powell described housing sector activity as “weak” in a press conference after the central bank’s policy decision.

“If you can get some of those mortgage rates to come down, maybe that breathes a little bit of life back into the housing market,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, adding that getting mortgage rates down in the 5% range was an important threshold.