Homebuilder stocks are hitting new highs as anticipation builds ahead of the Federal Reserve’s upcoming rate cut decision. Both Lennar Corp LEN and PulteGroup, Inc. PHM surged to 52-week highs on Sept. 18, with Lennar reaching $190.12 and PulteGroup hitting $141.43.

The rally comes as investors bet that the Fed’s expected rate cut could further boost the already resurgent housing market.

Lower Rates To Benefit Home Builder Stocks

A note from Bank of America Securities highlights that the rally in homebuilder stocks has been underway since early July, coinciding with a drop in 30-year mortgage rates from 7% to 6.2%.

“Lower rates would benefit home demand,” the note added, suggesting that a Federal Reserve cut of 25 to 50 basis points would add fuel to the fire for the housing sector.

Read Also: Homebuilder Stocks Outperform Ahead Of Potential Rate Cuts — But What’s Next?

Lennar’s Cash Flow Yield In Focus As It Reports Q3 Earnings

Lennar, up 26.78% year to date and nearly 60% over the past year, has been a standout performer, benefiting from strong demand and improved earnings multiples. The company is expected to release its third-quarter earnings tomorrow (Thursday), which could provide further insights into its performance.

Bryn Talkington of Requisite Capital Management also pointed to Lennar's impressive free cash flow yield of 11%, making it an attractive play for investors seeking value amid the rate cut frenzy.

PulteGroup’s Margins Continue To Impress Investors

PulteGroup, up a whopping 82.46% over the past year, followed a similar path. The company, which develops single-family homes under well-known brands such as Pulte Homes and Centex, continues to enjoy top-of-the-line margins despite industry headwinds like inflation and a soft labor market.

Analysts believe the Fed's expected rate cut will temporarily relieve the housing affordability crisis, though long-term challenges remain.

Lennar and PulteGroup are positioned to keep riding the wave as the Fed’s decision looms. Investors eyeing exposure to the housing sector may want to watch closely.

Read Next:

• Single-Family Housing Starts Are Up As Mortgage Rates Decline, Fed Eyes Lower Rates