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According to Freddie Mac, for the week ending Sept. 12, the 30-year fixed-rate mortgage slipped to its lowest level since February 2023. The rate on the 30-year loan averaged 6.2%, down from the four-week and 52-week averages of 6.34% and 6.93%, respectively. The 30-year mortgage rate hovered around the 7% mark for most of the year, but since late July, it has begun to cool off and has fallen since then.
The 15-year fixed mortgage average rate was 5.27%, down from the four-week and 52-week averages of 5.47% and 6.21%, respectively, a positive development for aspiring homeowners, added Freddie Mac. U.S. homebuilders seem positioned strongly, driven by falling mortgage rates and the potential for Fed rate cuts.
Lower mortgage rates have led to increased housing market activity, leading to a rise in exchange-traded funds (ETFs) in recent weeks. iShares US Home Construction ETF (ITB - Free Report) added 5.2% in the past week while SPDR S&P Homebuilders ETF (XHB - Free Report) gained 6.3%.
What Lies Ahead for Homebuilder Stocks?
Expectations that the Fed will start cutting interest rates from this week have buoyed the housing market in recent weeks. Cooling inflation readings and a slowdown in the labor market have bolstered the case for lower rates.
The Zacks Home Builders belongs to a solid industry, which is placed in the top 10% in terms of ranking among more than 250 Zacks industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months.
Quantitative research studies suggest that about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
This homebuilding group has seen 28.36% gains this year (versus 19% increase in the S&P 500) but could soar further due to the possibility of easing interest rates. Plus, the homebuilding industry is currently attractively valued with a P/E ratio of 10.26X versus 19.78X for the S&P 500 index ETF (IVV - Free Report) .
Not only upbeat industry rank, homebuilders hail from an upbeat Zacks Construction sector, which ranks in the top 38% out of approximately 16 sectors. The space is up 19.1% this year.
Another Ray of Hope: Increased Housing Inventory
Many market watchers expect increased inventory to eventually boost home sales in the coming months. The supply of existing homes on the market has been increasing lately, partly because homeowners who were waiting for mortgage rates to fall have finally decided to list their properties. Despite this increase, the inventory remains below pre-pandemic levels when mortgage rates were significantly lower.
Reasons to Worry: Lack of Affordability, Buyer Hesitation
The National Association of Home Builders (NAHB) and Wells Fargo's Housing Market Index (HMI) fell to 39, the lowest reading since December 2023. This was due to a lack of affordability and buyer hesitation.
Further, the supply of homes will remain challenged due to nearly 15 years of underproduction. Hence, even if the Fed cuts interest rates, these factors will continue to bother the homebuilding market.
Homebuilder ETFs in Focus
iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Hoya Capital Housing ETF (HOMZ - Free Report) and Invesco Building & Construction ETF (PKB - Free Report) are some of the ETFs that stand to gain from the highly-anticipated Fed rate cut this week.
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Time for Homebuilder ETFs as Mortgage Rates Fall?
According to Freddie Mac, for the week ending Sept. 12, the 30-year fixed-rate mortgage slipped to its lowest level since February 2023. The rate on the 30-year loan averaged 6.2%, down from the four-week and 52-week averages of 6.34% and 6.93%, respectively. The 30-year mortgage rate hovered around the 7% mark for most of the year, but since late July, it has begun to cool off and has fallen since then.
The 15-year fixed mortgage average rate was 5.27%, down from the four-week and 52-week averages of 5.47% and 6.21%, respectively, a positive development for aspiring homeowners, added Freddie Mac. U.S. homebuilders seem positioned strongly, driven by falling mortgage rates and the potential for Fed rate cuts.
Lower mortgage rates have led to increased housing market activity, leading to a rise in exchange-traded funds (ETFs) in recent weeks. iShares US Home Construction ETF (ITB - Free Report) added 5.2% in the past week while SPDR S&P Homebuilders ETF (XHB - Free Report) gained 6.3%.
What Lies Ahead for Homebuilder Stocks?
Expectations that the Fed will start cutting interest rates from this week have buoyed the housing market in recent weeks. Cooling inflation readings and a slowdown in the labor market have bolstered the case for lower rates.
The Zacks Home Builders belongs to a solid industry, which is placed in the top 10% in terms of ranking among more than 250 Zacks industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months.
Quantitative research studies suggest that about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
This homebuilding group has seen 28.36% gains this year (versus 19% increase in the S&P 500) but could soar further due to the possibility of easing interest rates. Plus, the homebuilding industry is currently attractively valued with a P/E ratio of 10.26X versus 19.78X for the S&P 500 index ETF (IVV - Free Report) .
Not only upbeat industry rank, homebuilders hail from an upbeat Zacks Construction sector, which ranks in the top 38% out of approximately 16 sectors. The space is up 19.1% this year.
Another Ray of Hope: Increased Housing Inventory
Many market watchers expect increased inventory to eventually boost home sales in the coming months. The supply of existing homes on the market has been increasing lately, partly because homeowners who were waiting for mortgage rates to fall have finally decided to list their properties. Despite this increase, the inventory remains below pre-pandemic levels when mortgage rates were significantly lower.
Reasons to Worry: Lack of Affordability, Buyer Hesitation
The National Association of Home Builders (NAHB) and Wells Fargo's Housing Market Index (HMI) fell to 39, the lowest reading since December 2023. This was due to a lack of affordability and buyer hesitation.
Further, the supply of homes will remain challenged due to nearly 15 years of underproduction. Hence, even if the Fed cuts interest rates, these factors will continue to bother the homebuilding market.
Homebuilder ETFs in Focus
iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Hoya Capital Housing ETF (HOMZ - Free Report) and Invesco Building & Construction ETF (PKB - Free Report) are some of the ETFs that stand to gain from the highly-anticipated Fed rate cut this week.