Homebuilder stocks surged in July as a cooler-than-expected June inflation report fueled hopes for significant mortgage rate drops this year. It’s now more than priced in that we’ll get an interest rate cut in September, with the market implying around 100 basis points of cuts by the end of the year.
For homebuilder stocks, that’s great news. Lower rates should bring down Treasury yields, which mortgage rates are derived from. But it’s true that a series of cuts could certainly entice sidelined homebuyers to re-enter the housing market, boosting the outlook of many homebuilders which have been forced to offer incentives to offload their inventory.
With investors rising, a recent dip in various homebuilder stocks is notable. But the question is whether this is a notable buying opportunity, or if these interest rate cuts on the horizon could be a headfake.
I think the former scenario could be more likely moving forward, and as such, would invite investors to at least take a look at these home builders right now.
This post originally appeared at 24/7 Wall St.