What Happened?
Shares of homebuilder Meritage Homes (NYSE: MTH) jumped 5.6% in the afternoon session after expectations for a Federal Reserve interest rate cut fueled a drop in mortgage rates and Treasury yields, boosting the homebuilding sector. The positive sentiment comes as recent weak labor market reports increased the chances of the Fed cutting its benchmark rate as soon as this month to 95%, according to the swaps market. This speculation sent the 10-year Treasury note yield to a four-month low. Lower Treasury yields typically lead to lower mortgage rates, which makes home financing more affordable for potential buyers and stimulates housing demand.
The shares closed the day at $81.51, up 6.2% from previous close.
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What Is The Market Telling Us
Meritage Homes’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 23 days ago when the stock gained 3.9% on the news that investors grew optimistic about the housing sector amid favorable inflation data that increased the probability of a Federal Reserve interest rate cut and news of an extension of the U.S.-China trade truce. This optimism fueled a broader market rally, with homebuilders benefiting from the increased likelihood of a Federal Reserve interest rate cut. Recent data showed inflation holding steady at 2.7%, bolstering the case for the Fed to lower its benchmark rate, which would likely reduce mortgage rates and make homeownership more accessible. The positive sentiment was reinforced by a report from the National Association of REALTORS® showing that national median single-family home prices reached a record high in the second quarter. The housing sector as a whole has shown strength, with other homebuilders also seeing strong returns recently.
Meritage Homes is up 5.2% since the beginning of the year, but at $79.93 per share, it is still trading 25.2% below its 52-week high of $106.85 from September 2024. Investors who bought $1,000 worth of Meritage Homes’s shares 5 years ago would now be looking at an investment worth $1,713.
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