With the decline in inflation rate in recent months, the rise in US real estate stocks is astonishing, and investors seem to have concluded that the Federal Reserve will almost certainly cut interest rates at the next meeting. (Although there is still some debate about the extent of the rate cut.)

Of course, the real estate market is a typical representative of the interest rate-sensitive industry in the economy. The expected decline in Federal Reserve rates has transmitted to the mortgage rates through the bond market, and the current 30-year fixed mortgage rate is about 6.50%.

This should stimulate activity among home buyers. The astonishing aspect of the recent surge in homebuilder stocks is that it is happening against the backdrop of severe shortage in actual home construction. New home starts in July fell to the lowest level in four years - to be fair, this may be due to adverse weather conditions - but still!

How do we explain this? Those who believe that the financial markets know everything may say that astute traders are simply pricing in the lower mortgage rates and anticipate an increase in activity in the future. Cynical observers may simply point out that the current situation of the real estate market - low inventory, high prices - means that homebuilders can make the expected money on Wall Street without having to build as many houses.

Editor/new