Home Builder Stocks Bumped Up By Fed Rate Cuts

It is a good day to be a housing giant. After the Federal Reserve unexpectedly cut the Fed funds rate by half on Tuesday, some of largest home builders' stocks jumped, hitting session highs. In what experts say may be the best week since last June, the homebuilders’ ETF (ITB) are up nearly 2.3 percent and 6.2 percent this week, and the industry may continue to perform well if the federal government makes further rate cuts. Low mortgage rates can incentivize potential buyers to purchase a home to lock in the low payments. However, this windfall for home builders is curbed by its grim origins: The Federal Reserve issued the cuts after fears of the coronavirus spreading and disrupting trade escalated. 

Stocks of the nation’s biggest homebuilders jumped Tuesday after the surprise 50 basis point rate cut by the Federal Reserve.

The homebuilders’ ETF (ITB) hit session highs in the morning, up nearly 2.3%, and 6.2% this week, though the price was fluctuating with the market. It was on pace for its best week since June 7, and moved out of correction territory.

The gains were led by names like Lennar, Pulte, D.R. Horton and Taylor Morrison, which were all up more than the broader averages.

Mortgage rates do not follow the Fed Funds rate, but instead loosely follow the yield on the 10-year Treasury. Still, the drop by the central bank is a result of high volatility in the markets on concern that the deadly coronavirus outbreak will impact the economy. That will keep investors in the bond market driving yields lower.

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