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Is Builder Confidence Set to Rebound on Looming Fed Rate Cuts?
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Key Takeaways
Builder sentiment held steady at 32 in September, with future sales expectations hitting a six-month high.
Easing mortgage rates and anticipated Fed cuts are fueling cautious optimism among homebuilders.
Homebuilders and suppliers like DHI, TOL, HD, LOW, and MAS have posted strong gains in the past 3 months.
The U.S. housing market has been navigating a delicate balance between affordability headwinds and pent-up demand since mid-2022. Elevated mortgage rates, higher construction costs, and a cooling labor market have restrained both buyer activity and builder sentiment. Yet, optimism is beginning to emerge. While confidence among U.S. homebuilders stayed muted in September, easing mortgage rates and the likelihood of imminent Federal Reserve rate cuts have lifted hopes for stronger demand ahead.
Sentiment Stalled but Hints of Optimism
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in newly built single-family homes held at 32 in September, unchanged from August. Sentiment has hovered in a narrow 32–34 range since May, reflecting caution across the industry. Still, expectations for future sales ticked higher. The index tracking sales outlook rose two points to 45, its best reading since March, even as current sales conditions stayed flat at 34 and buyer traffic slipped one point to 21.
NAHB Chief Economist Robert Dietz noted that the Fed is expected to trim the federal funds rate this week, which could ease financing costs for both builders and buyers. Dietz highlighted Freddie Mac data showing the 30-year fixed mortgage rate declined 23 basis points over the past month to 6.35%, the lowest level since October 2024. He also stated, “This is a positive sign for future housing demand.”
Price Cuts and Incentives Still in Play
Despite improving rate conditions, builders continue to lean on discounts to drive sales. In September, 39% reported reducing prices, up from 37% the prior month and the highest share since the post-COVID period began. The average reduction remained steady at 5%, a trend that has been consistent since late 2024. Incentives also remain widespread, with 65% of builders offering them, little changed from August.
Economic Backdrop: Inflation, Labor, and Mortgage Relief
The broader economy remains a key swing factor for housing. Inflation, though off its highs, is still sticky. The consumer price index rose 2.9% year over year in August, up from 2.7% in July and the fastest pace since January. Core inflation held at 3.1%, signaling the Fed’s fight against price pressures is far from finished.
Meanwhile, labor market momentum has softened. The United States added only 22,000 jobs in August, among the weakest monthly gains in years, while the unemployment rate edged up to 4.3% from 4.2% in July.
Mortgage rates have been a rare bright spot. Freddie Mac reported that the average 30-year fixed rate eased to 6.35% for the week that ended on Sept. 11, down 23 bps over the past four weeks, fell 15 bps from last week and marked the lowest level since mid-October 2024. The 15-year fixed rates averaged 5.50%. This reprieve could reopen doors for sidelined buyers, though affordability challenges remain significant.
Will Rate Cuts Be Enough to Spark a Rally?
The effectiveness of rate cuts will hinge on both timing and scale. Mortgage rates are influenced heavily by long-term bond yields, meaning a single 25-basis-point Fed cut may deliver only modest relief unless it marks the start of a broader easing cycle.
Persistent inflation complicates the outlook. Should inflation remain above 2.5%–3%, aggressive rate cuts risk reigniting price pressures and forcing a reversal. At the same time, a weakening labor market could weigh on housing demand, as job insecurity and softer wage growth make long-term mortgage commitments less appealing.
As such, the Fed’s actions may stabilize the market rather than spark a dramatic rally. A gradual recovery—characterized by firmer sales volumes and slowly improving affordability—appears more likely through 2026 than a repeat of the post-pandemic boom.
Notably, over the past three months, the Zacks Building Products – Home Builders industry has had a decent 29.5% gain, outperforming the broader Zacks Construction sector’s 12.1% increase and the S&P 500’s 12.1% rise.
3-Month Industry Performance
Image Source: Zacks Investment Research
Stocks to Watch: DHI, TOL, HD, LOW & MAS Stocks
For investors, selective exposure to homebuilders and housing-related suppliers could provide leverage to a gradual recovery.
D.R. Horton (DHI - Free Report) remains a top candidate, given its scale and geographic diversification. Its ability to offer competitive pricing and incentives positions it well if affordability improves. D.R. Horton— a Zacks Rank #3 (Hold) stock — has jumped 41.6% in the past three months, outperforming the industry’s 29.5% rise. D.R. Horton stock has seen an upward estimate revision for fiscal 2025 earnings to $11.79 from $11.40 per share over the past 60 days. The Zacks Consensus Estimate for its fiscal 2025 earnings per share is expected to register a 18% year-over-year decline but 2.2% growth for fiscal 2026. Meanwhile, this company surpassed earnings estimates in two of the trailing four quarters and missed on the other two occasions, with an average being 3.7%. DHI has a trailing 12-month Return on Equity (ROE) of 15.7%.
Toll Brothers (TOL - Free Report) , while more focused on luxury buyers, could benefit as lower rates revive confidence among high-income households. Toll Brothers’ premium communities could see increased traction if the wealth effect from equities and easing financing align. Toll Brothers — a Zacks Rank #3 stock — has gained 34% in the past three months. Meanwhile, this company surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, the average being 5.5%. TOL carries a Value Score of B. TOL has a trailing 12-month ROE of 17.4%.
Beyond builders, housing-market-related companies are set to participate in any recovery. Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) , and Masco (MAS - Free Report) — all Zacks Rank #3 — have posted three-month gains of 21.4%, 28.3%, and 20.4%, respectively. Home Depot has been strengthening its position through balanced capital allocation and growth investments, while Lowe’s is expanding deeper into the $250 billion Pro market with acquisitions such as Foundation Building Materials and Artisan Design Group. Both Lowe’s and Home Depot are also driving digital growth, with Lowe’s reporting a 7.5% increase in online sales supported by AI-powered tools.
Masco, meanwhile, continues to deliver solid performance thanks to its strong portfolio of brands like Delta, Hansgrohe, and Behr. Masco has offset tariff pressures through pricing strategies and supply chain adjustments, while benefiting from sustained demand in the remodeling and professional paint markets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is Builder Confidence Set to Rebound on Looming Fed Rate Cuts?
Key Takeaways
The U.S. housing market has been navigating a delicate balance between affordability headwinds and pent-up demand since mid-2022. Elevated mortgage rates, higher construction costs, and a cooling labor market have restrained both buyer activity and builder sentiment. Yet, optimism is beginning to emerge. While confidence among U.S. homebuilders stayed muted in September, easing mortgage rates and the likelihood of imminent Federal Reserve rate cuts have lifted hopes for stronger demand ahead.
Sentiment Stalled but Hints of Optimism
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence in newly built single-family homes held at 32 in September, unchanged from August. Sentiment has hovered in a narrow 32–34 range since May, reflecting caution across the industry. Still, expectations for future sales ticked higher. The index tracking sales outlook rose two points to 45, its best reading since March, even as current sales conditions stayed flat at 34 and buyer traffic slipped one point to 21.
NAHB Chief Economist Robert Dietz noted that the Fed is expected to trim the federal funds rate this week, which could ease financing costs for both builders and buyers. Dietz highlighted Freddie Mac data showing the 30-year fixed mortgage rate declined 23 basis points over the past month to 6.35%, the lowest level since October 2024. He also stated, “This is a positive sign for future housing demand.”
Price Cuts and Incentives Still in Play
Despite improving rate conditions, builders continue to lean on discounts to drive sales. In September, 39% reported reducing prices, up from 37% the prior month and the highest share since the post-COVID period began. The average reduction remained steady at 5%, a trend that has been consistent since late 2024. Incentives also remain widespread, with 65% of builders offering them, little changed from August.
Economic Backdrop: Inflation, Labor, and Mortgage Relief
The broader economy remains a key swing factor for housing. Inflation, though off its highs, is still sticky. The consumer price index rose 2.9% year over year in August, up from 2.7% in July and the fastest pace since January. Core inflation held at 3.1%, signaling the Fed’s fight against price pressures is far from finished.
Meanwhile, labor market momentum has softened. The United States added only 22,000 jobs in August, among the weakest monthly gains in years, while the unemployment rate edged up to 4.3% from 4.2% in July.
Mortgage rates have been a rare bright spot. Freddie Mac reported that the average 30-year fixed rate eased to 6.35% for the week that ended on Sept. 11, down 23 bps over the past four weeks, fell 15 bps from last week and marked the lowest level since mid-October 2024. The 15-year fixed rates averaged 5.50%. This reprieve could reopen doors for sidelined buyers, though affordability challenges remain significant.
Will Rate Cuts Be Enough to Spark a Rally?
The effectiveness of rate cuts will hinge on both timing and scale. Mortgage rates are influenced heavily by long-term bond yields, meaning a single 25-basis-point Fed cut may deliver only modest relief unless it marks the start of a broader easing cycle.
Persistent inflation complicates the outlook. Should inflation remain above 2.5%–3%, aggressive rate cuts risk reigniting price pressures and forcing a reversal. At the same time, a weakening labor market could weigh on housing demand, as job insecurity and softer wage growth make long-term mortgage commitments less appealing.
As such, the Fed’s actions may stabilize the market rather than spark a dramatic rally. A gradual recovery—characterized by firmer sales volumes and slowly improving affordability—appears more likely through 2026 than a repeat of the post-pandemic boom.
Notably, over the past three months, the Zacks Building Products – Home Builders industry has had a decent 29.5% gain, outperforming the broader Zacks Construction sector’s 12.1% increase and the S&P 500’s 12.1% rise.
3-Month Industry Performance
Image Source: Zacks Investment Research
Stocks to Watch: DHI, TOL, HD, LOW & MAS Stocks
For investors, selective exposure to homebuilders and housing-related suppliers could provide leverage to a gradual recovery.
D.R. Horton (DHI - Free Report) remains a top candidate, given its scale and geographic diversification. Its ability to offer competitive pricing and incentives positions it well if affordability improves. D.R. Horton— a Zacks Rank #3 (Hold) stock — has jumped 41.6% in the past three months, outperforming the industry’s 29.5% rise. D.R. Horton stock has seen an upward estimate revision for fiscal 2025 earnings to $11.79 from $11.40 per share over the past 60 days. The Zacks Consensus Estimate for its fiscal 2025 earnings per share is expected to register a 18% year-over-year decline but 2.2% growth for fiscal 2026. Meanwhile, this company surpassed earnings estimates in two of the trailing four quarters and missed on the other two occasions, with an average being 3.7%. DHI has a trailing 12-month Return on Equity (ROE) of 15.7%.
Toll Brothers (TOL - Free Report) , while more focused on luxury buyers, could benefit as lower rates revive confidence among high-income households. Toll Brothers’ premium communities could see increased traction if the wealth effect from equities and easing financing align. Toll Brothers — a Zacks Rank #3 stock — has gained 34% in the past three months. Meanwhile, this company surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, the average being 5.5%. TOL carries a Value Score of B. TOL has a trailing 12-month ROE of 17.4%.
Beyond builders, housing-market-related companies are set to participate in any recovery. Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) , and Masco (MAS - Free Report) — all Zacks Rank #3 — have posted three-month gains of 21.4%, 28.3%, and 20.4%, respectively. Home Depot has been strengthening its position through balanced capital allocation and growth investments, while Lowe’s is expanding deeper into the $250 billion Pro market with acquisitions such as Foundation Building Materials and Artisan Design Group. Both Lowe’s and Home Depot are also driving digital growth, with Lowe’s reporting a 7.5% increase in online sales supported by AI-powered tools.
Masco, meanwhile, continues to deliver solid performance thanks to its strong portfolio of brands like Delta, Hansgrohe, and Behr. Masco has offset tariff pressures through pricing strategies and supply chain adjustments, while benefiting from sustained demand in the remodeling and professional paint markets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.