The real estate stock trade came back to life last Friday—and no one rallied harder than homebuilders.
The SPDR Homebuilders ETF XHB soared 5.1%, marking the strongest move across all major equity industries.
Behind the surge? Fed Chair Jerome Powell's dovish pivot at Jackson Hole, which reinforced expectations that the Federal Reserve is preparing to cut rates, possibly as soon as September.
For a sector as deeply tied to borrowing costs as housing, the message was loud and clear: easier financial conditions are coming, and homebuilders stand to benefit first.
Powell Clears The Way For Housing Market Rebound
In his closely watched Jackson Hole speech, Powell said the Fed is ready to "adjust our policy stance" in light of shifting risks, particularly on the jobs front.
The tone marked a notable shift from inflation-first messaging, signaling a greater willingness to support growth—even if that means inflation stays slightly elevated for now.
Markets took it as a green light for a September rate cut, and traders quickly rotated into sectors that historically thrive on lower interest rates—housing at the top of that list.
New Home Sales Beat Expectations
Recent housing data added to the bullish narrative.
New home sales in July came in stronger than expected, up 0.6% from the previous month to a seasonally adjusted annualized rate of 652,000 units, beating estimates of 630,000 thanks to a mix of aggressive pricing strategies and mortgage incentives from builders.
"Price cuts and other builder incentives are keeping a floor under new home sales," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, in emailed comment.
The median new home price dropped to its lowest level since November, down 5.9% year over year, giving buyers some relief after two years of affordability pressure. And while sales were flat from June, the South—long the housing market's strongest region—continued to outperform.
One potential headwind? Inventory is rising. The number of completed homes for sale reached a 16-year high, which could weigh on future starts. Still, that rising supply may be just what the market needs to cool prices further and sustain demand.
Rate Relief Could Be The Catalyst Builders Need
For economists, the Fed support creates a powerful setup for homebuilders.
"Opportunities remain for builders if they can entice buyers with below-market mortgage rates," said Jeffrey Roach, chief economist at LPL Financial.
He also flagged how housing activity spills into other parts of the economy—consumer spending, home improvement, and broader confidence.
Case in point: Home Depot Inc. HD recently reported that "big-ticket" transactions (over $1,000) increased in Q2, reversing previous declines and indicating a return to homeowner confidence.
And with the average 30-year fixed mortgage rate down 80 basis points from this year's highs, financing conditions are starting to ease—just as the Fed signals it may do even more.
With mortgage rates slipping, demand stabilizing, and the Fed now tilting toward support, the conditions are aligning for a housing rebound into year-end.
For now, investors are betting that lower rates will put homebuilders back in the driver's seat.
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