Key Takeaways
- Homebuilder stocks jumped Friday after comments from a Federal Reserve official boosted hopes of an interest rate cut in December.
- A drop in the central bank’s benchmark rate could lead to lower mortgage rates, which would help homebuyers and drive more revenue for homebuilders.
Builders are getting a big boost from rising expectations of a rate cut next month.
Homebuilder stocks were among some the biggest gainers in the S&P 500 Friday, after Federal Reserve Bank of New York president John Williams said at a conference that there is “room for a further adjustment in the near term to the target range for the federal funds rate,” adding fuel to hopes of a rate cut when the Fed next meets on Dec. 9 and 10.
Traders are now pricing in a roughly 70% chance of a rate cut next month following the comments, up from 39% just yesterday, according to CME Group’s FedWatch tool, which is based on pricing of Fed funds rate futures contracts.
Shares of Builders FirstSource (BLDR), D.R. Horton (DHI), and KB Home (KBH) each surged about 7% Friday as the odds of a cut rose, while Lennar (LEN) added close to 6%. PulteGroup (PHM) shares climbed just over 5%. Other stocks connected to real estate also gained, including Zillow Group (Z) and mortgage broker Rocket Companies (RKT).
Why This Matters to You
The Federal Reserve’s benchmark interest rate impacts how much it costs businesses to borrow money, which in turn can impact rates that consumers pay on auto loans, mortgages, and even credit cards. A lower Fed funds rate could lead to lower mortgage rates, which could make homes more affordable for buyers.
Still, many of those stocks, including Builders FirstSource, KB Home, Lennar, and Zillow, remained in negative territory for 2025. The housing market has been sluggish this year as mortgage rates have remained elevated, leaving many buyers waiting on the sidelines for rates to drop, while others who bought a home in the years when rates were lower are more likely to stay put in order to hold on to their rate.
The prospect of a rate cut next month would be a boon for homebuilders and other companies tied to the real estate market, as it would mean lower mortgage rates, which could help stimulate demand from homebuyers, driving up revenues for companies that make and sell homes.
