U.S. homebuilding stocks rise on hopes of increased demand after Fed rate cuts By Reuters

(Reuters) – Shares of major U.S. homebuilders rose in premarket trade on Thursday, supported by expectations of stronger demand due to lower borrowing costs after the Federal Reserve unveiled an excessive interest rate cut.

Dr. Horton Lennar (NYSE: ), PulteGroup (NYSE: ) and Toll Brothers (NYSE: ) rose about 3% before the bell. Lennar is set to report quarterly earnings later today.

The U.S. central bank on Wednesday launched an anticipated round of interest rate cuts, with a half-percentage-point cut higher than usual, expected to further reduce mortgage rates in coming months and help reduce the stimulus that builders must offer them attract buyers.

Shares of home improvement chains Home Depot (NYSE: ) and Lowe’s (NYSE: ) also rose about 2 percent in premarket trading Thursday.

The lower cost of financing could also boost homebuilding activity, offsetting a chronic housing shortage that has been a growing problem since the 2008 financial crisis.

The central bank raised interest rates between 2022 and 2023 to a range of 5.25%-5.50% to curb high inflation, causing a slowdown in the housing market, but mortgage rates fell as the Fed telegraphed cuts.

The average 30-year fixed-rate mortgage rate recently fell to 6.20 percent, according to Freddie Mac, from a high of nearly 8 percent months ago.

The Fed’s interest rate cuts will likely push mortgage interest rates down and should reduce interest rates on loans to the land development and homebuilding businesses, NAHB Chief Economist Robert Dietz said in a recent report.

“Decreasing construction costs is critical to addressing persistent housing affordability challenges.”

Shares of homebuilders have rallied recently, with the S&P 500 homebuilding index gaining more than 30% so far this year, compared with a 17% rise in the S&P 500 (), pricing in expectations of further rate cuts and the corresponding reduction in mortgage rates.