The homebuilder sector is experiencing a surge in excitement as anticipation builds for the Federal Reserve’s upcoming decision on interest rates. On September 18th, both Lennar Corp (LEN) and PulteGroup, Inc. (PHM) reached their 52-week highs, with Lennar hitting $190.12 and PulteGroup reaching $141.43. This rally comes as investors are betting that the Fed’s expected rate cut will provide an extra boost to the already thriving housing market.
Bank of America Securities points out that the rise in homebuilder stock prices has been underway since early July, coinciding with a decline in 30-year mortgage rates from 7% to 6.2%. The bank’s note suggests that a rate cut of 25 to 50 basis points by the Federal Reserve would further fuel the housing sector’s growth, as lower interest rates would make homeownership more affordable for potential buyers.
Lennar, with a 26.78% year-to-date gain and a nearly 60% surge over the past year, stands out as a top performer, benefiting from strong demand and improved earnings multiples. The company is set to release its third-quarter earnings on Thursday, which could offer further insights into its performance. Bryn Talkington of Requisite Capital Management highlights Lennar’s impressive free cash flow yield of 11%, making it an attractive investment for value-seeking investors amidst the rate cut frenzy.
Following a similar trajectory, PulteGroup has witnessed an impressive 82.46% rise in its stock price over the past year. The company, known for developing single-family homes under brands like Pulte Homes and Centex, continues to maintain top-of-the-line profit margins despite industry challenges like inflation and a tight labor market.
Analysts believe that the Fed’s anticipated rate cut will offer a temporary relief to the housing affordability crisis, although long-term challenges persist. Both Lennar and PulteGroup are well-positioned to capitalize on the potential wave of growth as the Fed’s decision approaches. Investors looking to gain exposure to the housing sector should keep a close eye on these developments.
