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Investing.com - The Federal Reserve’s latest interest rate cut is unlikely to alter the trajectory of the U.S. housing market meaningfully in the near-term, according to analysts at BofA.
In a note to clients on Thursday, the bank flagged that mortgage rates appeared to be "relatively unchanged" after the Fed brought down rates by 25 basis points. Shares of home construction companies also rallied initially but closed lower, they flagged.
"We believe homebuilder stocks and mortgage rates already anticipated rate cuts following the rally in recent months," the analysts wrote.
U.S. homebuilder and building product stocks have surged since June, tracking a decline in 30-year mortgage rates.
Theoretically, rate cuts can help to spur real estate spending by placing downward pressure on long-term mortgage rates, especially the popular 30-year loan.
Average rates for a 30-year fixed-rate mortgage dropped to roughly 6.35% this week -- its lowest level in almost a year -- as investors moved to price in a Fed borrowing cost drawdown. By the end of 2025, BofA forecasts that the rate will stand at 6.05% to 6.10%, adding that there is a "potential path" to 5% as well in the event of an aggressive policy response to a housing affordability emergency.
Recently, new home demand has stabilized -- albeit from sluggish levels -- and spending on home improvement projects has improved modestly, the BofA analysts said. They predicted that housing demand "should improve with lower mortgage rates," although the magnitude of this change "will be important."
Against this backdrop, the analysts led by Rafe Jadrosich raised their price targets for U.S. homebuilder stocks by an average of 8%, and reiterated "buy" ratings for Meritage Homes (NYSE:MTH), NVR Inc (NYSE:NVR), PulteGroup (NYSE:PHM), Taylor Morrison Home (NYSE:TMHC), and Toll Brothers Inc (NYSE:TOL).