US Real Estate Sector Leads Rally on Expectations of 'Rate Cut'
The real estate sector has lagged behind the broader market this year, with $Dow Jones U.S. Real Estate Index (.DJUSRE.US)$ only rising 1.69% compared to $S&P 500 Index (.SPX.US)$'s 16.67% increase and the Dow Jones Industrial Average $Dow Jones Industrial Average (.DJI.US)$'s 7.23% rise year-to-date. However, over the past ten days, the S&P 500 has declined 0.15%, the Dow Jones Industrial Average has gained 2.72%, and the Dow Jones Real Estate Index has surged 6.90%.
This can be attributed to the recent US June inflation report, which showed that core CPI hit a more than three-year low with a rapid cooling of stubborn housing inflation. As a result, the market has increased its bets on the Federal Reserve cutting interest rates in September. The FedWatch tool on the Chicago Mercantile Exchange now shows a 91.7% probability of a 25 basis point rate cut in September. Lower borrowing costs usually stimulate housing demand and, in turn, drive the growth of the real estate market.
Furthermore, with the increasing likelihood of Trump's election victory, the market expects the real estate sector to benefit from his economic stimulus policies. Marty Harlee, President and CEO of First Financial Corporation, believes that if Trump wins the upcoming election, the US will see another large-scale refinancing boom and record home sales.
Investors have reevaluated the prospects of the real estate sector, injecting vitality into the previously weak industry and resulting in significant gains.
Within the residential construction sector, most constituent stocks have risen by more than 20% over the past ten days. Among companies with a market cap of over $5 billion, DHI, $Meritage Homes (MTH.US)$, and $Taylor Morrison Home (TMHC.US)$ are the top three performers, with ten-day gains of 30.09%, 25.51%, and 21.62%, respectively.
$D.R. Horton (DHI.US)$, the largest residential real estate developer in the US, recently hit a historical high due to its Q3 earnings exceeding expectations and its revised FY24 guidance. The company's revenue for the three months ending June 30 was $9.97 billion, surpassing analysts' consensus estimate of $9.61 billion, and earnings per share were $3.9, exceeding expectations of $3.79. D.R. Horton expects revenue for FY2024 to be between $36.8 billion and $37.2 billion, compared to a previous estimate of $36.7 billion to $37.7 billion. Additionally, the company announced a $4 billion stock buyback plan.
Barclays analyst Matthew Bouley raised the firm's price target on D.R. Horton to $200 from $168 and maintained an "Overweight" rating on the stock. Bouley noted that D.R. Horton's "surprisingly positive" margin guidance into Q4, coupled with a tone shift around increased capital deployment, sets the stage for greater earnings power next year.
$Lennar Corp (LEN.US)$ has risen by 20.94% but was downgraded by Goldman Sachs from Buy to Neutral on July 22, with its target price lowered from $180 to $174. Goldman Sachs believes that, given the operating environment for the next few quarters, Lennar's stock has limited upside compared to other real estate developers, despite facing many opportunities for entry-level and first-time buyers as the Federal Reserve cuts interest rates.
by moomoo News Olivia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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