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Rate Cuts Poised to Hit Housing Market

Lower interest rates have made housing more affordable, and with rates poised to be cut again, Investopedia examines how the housing market will react to future cuts. According to INvestopedia, homebuilding stocks have already risen in anticipation, as the iShares U.S. Home Construction ETF (ITB), and the SPDR S&P Homebuilders ETF (XHB) are up by 41.5% and 34.9%, respectively.

Additionally, shares of homebuilder Hovnanian Enterprises Inc. (HOV) are down YTD, but they have shot up by 192% since hitting a 52-week low on Aug. 14. Rising revenues and gross margins indicate that "we are moving in the right direction," as Ara K. Hovnanian, Chairman, President and CEO, stated in that company's fiscal 3Q 2019 earnings release.

“Sales of new and existing homes this July were up from a year ago, supported by low mortgage rates and rising family income,” according to Dr. Frank Nothaft, chief economist at real estate data and analytics firm CoreLogic. "With the for-sale inventory remaining low in many markets, the pick-up in buying has nudged price growth up. If low interest rates and rising income continue, then we expect home-price growth will strengthen over the coming year,” he added.

Homebuying among millennials, is also poised to increased, as many potential first-time buyers have been apprehensive about buying a home. A recent survey sponsored by CoreLogic finds that 26% intend to buy a home within the next 12 months, and 29% plan to rent, while only 8% expect to sell.

However, Investopedia notes that “their plans way be dashed if the economy, especially the job market, experiences a sharp downturn, restricting their ability to pay down new mortgage debt, even if its comes at an attractive interest rate.”

“Lower rates are certainly making it more affordable to buy homes and millennial buyers are entering the market with increasing force," observes Frank Martell, president and CEO of CoreLogic. "These positive demand drivers, which are occurring against a backdrop of persistent shortages in housing stock, are the major drivers for higher home prices, which will likely continue to rise for the foreseeable future," he continued.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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