Confidence among US home builders increased in September for the first time in six months, just ahead of the Federal Reserve's anticipated interest rate cut from the current two-decade high.
A measure of housing market conditions from the National Association of Home Builders (NAHB) and Wells Fargo climbed by two points to 41 this month, aligning with the median estimate of economists surveyed by Bloomberg. The index showed gains across all regions, signaling a broad improvement in sentiment.
Metrics for prospective-buyer traffic and current sales rose from their 2024 lows, while an outlook index for the next six months jumped by four points to 53, marking the largest increase since January.
“With inflation moderating, the Federal Reserve is expected to start a cycle of monetary easing this week, which will create downward pressure on mortgage interest rates and reduce borrowing costs for land development and home construction,” said NAHB Chief Economist Robert Dietz.
The anticipated Fed rate cut has fueled a rally in home builder stocks, with shares of companies like Lennar Corp trading at record levels ahead of their earnings reports. The iShares US Home Construction ETF, which includes builders and related firms, has also seen significant gains.
As the Fed moves closer to an expected rate cut, mortgage rates have already fallen to their lowest levels since February 2023. The Mortgage Bankers Association forecasts that the 30-year fixed rate will decline to 5.9% by the end of 2025 from its current 6.29%.
Builder sentiment reflects cautious optimism, with fewer builders reporting price cuts and lower average price reductions for the first time since July 2022. The share of builders using sales incentives also declined, indicating improving conditions in the housing market.
Additional data releases this week, including housing starts from the government on Wednesday and existing-home sales from the National Association of Realtors on Thursday, are expected to provide further insights into the state of the housing industry.
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