What Fed's Hasty Rate Cut Means For Housing Amid Corona Scare
Zacks Investment Research | Mar 03, 2020 08:57PM ET
Shares of major homebuilders gained on Mar 3 after the Fed announced an emergency rate cut of 50 basis points to a range of 1-1.25% amid growing panic over the coronavirus outbreak.
Although major indices finished sharply lower on Mar 3, shares of Meritage Homes Corporation (NYSE:MTH) , Lennar (NYSE:LEN) , PulteGroup (NYSE:PHM) , D.R. Horton (NYSE:DHI) , KB Home (NYSE:KBH) and Toll Brothers (NYSE:TOL) spiked 3.3%, 2.6%, 1.5%, 1.4%, 1.1% and 0.1%, respectively. The iShares U.S. Home Construction ETF (WA:ITB) rose 0.6%. Meanwhile, the Dow Jones Industrial Average lost 2.94%, the S&P 500 tumbled 2.81% and the Nasdaq finished 2.99% down.
In a meeting with reporters, Fed Chairman Jerome Powell said, “The fundamentals of the U.S. economy remain strong.” However, “the spread of the coronavirus has brought new challenges and risks. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”
A Boon or Bane for Housing?
The outbreak has fueled concerns over shrinking supply in the housing market. As China’s manufacturing output is expected to decline with factories temporarily sidelined, U.S. building product supply chains are likely to get affected. Notably, nearly 30% of products used in U.S. building construction are imported from China. Hence, any disruption in the supply chain may impact builders’ ability to deliver in time (read more: Zacks Investment Research
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