Markets bid stocks up to all-time highs when the Federal Reserve cut interest rates by 50 bps. This is 25 bps higher than expected to kick-start the interest rate cut cycle.
Fearful investors may speculate that the Fed is worried about a recession and higher job losses. It chose to loosen credit conditions despite failing to achieve a 2.0% inflation rate target.
The bad news for home buyers is that the rate cut will not help enough. Mortgage rates did not fall by much after the news. Still, it will continue to head lower if bond yields decrease.
In addition, the Fed Chair said that limited supply is not something it could fix.
Last year, existing home sales fell to their lowest level in nearly 30 years. Home prices are not falling because owners do not want to renew their mortgages at a sharply higher rate.
Private equity firms are also buying many homes. They rent or offer lease to own at extremely high prices.
In the residential construction sector, watch Beazer Homes (BZH), D.R. Horton (DHI), Lennar (LEN), and PulteGroup (PHM).
In the automotive sector, lower lease rates may not spur higher vehicle sales. General Motors (GM), Ford (F), and Stellantis (STLA) raised prices and offered mostly high-end models. Luxury car firms like BMW (BMWYY) and Mercedes-Benz (MBGAF) are in trouble. Mercedes warned that its EBIT and FCF would be significantly below. The firm blamed China’s weak GDP growth for the weaker results.
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