Homebuilder stocks are on the rise as the Federal Reserve is expected to cut rates later this week, mortgage rates are on the decline and Democratic presidential candidate, Vice President Kamala Harris, proposes a homeownership plan that involves building three million new homes.
The Fed is expected to lower its key interest rate by either 25 or 50 basis points when it meets on Wednesday after holding back on doing so at its last meeting in July.
Mortgage rates have fallen to their lowest in more than 18 months, according to the Mortgage Bankers Association (MBA).
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.29 percent from 6.43 percent, marking several consecutive weeks of declining rates.
If elected president in November, Harris plans to launch a $25,000 credit for first-time homebuyers on buying a new home and an initiative to build three million new homes in four years.
Truist Securities has raised its rating on Builders First Source, Inc. (NYSE:BLDR) from Hold to Buy and its price target from $165 to $220.
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Analyst Keith Hughes noted reduced mortgage rates and lower lumber prices in the short term and, in the long term, an upswing in multifamily housing construction and Builders' ability to offer value-added products and digital offerings due to its large size.
Also, many homeowners who locked in rates as low as 3% and 4% over the past two years are holding onto their homes instead of selling, increasing demand for new homes.
"Given the continued limited inventory, we believe this will continue for several more years with new homes taking an even greater share of the market," he wrote in a note on Monday. "This is a notable catalyst for home builders and their suppliers such as BLDR."
Price Action: Homebuilders have seen gains and losses into Monday's early trading but have risen significantly over the past week.
- Builders First Source was up 3.61% to $189.88 on Monday morning, posting a 12% gain since Tuesday.
- Toll Brothers, Inc. (NYSE:TOL) slipped 0.51% to $149.04 on Monday morning but has gained 6.1% since Tuesday.
- M/I Homes, Inc. (NYSE:MHO) declined 0.1% to $166.32 on Monday but has risen 5.6% since Tuesday.
- Green Brick Partners, Inc. (NYSE:GRBK) was up 0.70% to $79.35 on Monday, and has gone up 7% since Tuesday.
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