The Federal Reserve cut its benchmark interest rate on September 17, 2025, reducing it from 4.5% to a range of 4%–4.25%. This marks the first rate reduction since December and is aimed at stabilizing a softening job market. The move quickly lifted housing stocks as investors bet on further monetary easing.
Housing Stocks Outperform
The PHLX Housing Index gained 15% this quarter, surpassing the S&P 500’s 7% increase. Top performers included:
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DR Horton: Up more than 30%
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KB Home and Toll Brothers: Both rising over 20%
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Lowe’s: Up 20%
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Home Depot: Gained 13%
Despite these advances, housing stocks still trail the S&P 500’s 13% year-to-date climb.
Mortgage Rates Trending Lower
The Mortgage Bankers Association reported that 30-year fixed mortgage rates dropped to 6.39% for the week ending September 12, the lowest since October 2024. Analysts at Keefe, Bruyette & Woods expect rates could approach 6% by year’s end.
Fed Chair Jerome Powell noted that declining mortgage rates may help revive homebuilding, which hit a 2.5-year low in August.
Market Optimism and Economic Impact
“Rate cuts could breathe life into housing,” said Jack Janasiewicz, strategist at Natixis Investment Managers, pointing to 5% mortgage rates as a crucial target.
Edward Jones strategist Angelo Kourkafas added that homebuilders stand to benefit from looser monetary policy, as lower borrowing costs often boost economic activity across housing and small-cap sectors.
Risks and Market Challenges
Mortgage rates usually mirror the 10-year U.S. Treasury yield, which recently dropped to 4.13% from 4.6% in May. Still, Fed rate cuts may not directly translate into cheaper mortgages due to other market forces.
Persistent inflation also remains a hurdle. Paul Nolte of Murphy & Sylvest warned that while strong housing activity supports growth, it could complicate inflation management.
Key Data Ahead
Investors are watching upcoming reports on existing and new home sales, second-quarter GDP, and manufacturing trends. The personal consumption expenditures price index will also be closely tracked.
Markets are awaiting Fed Chair Powell’s remarks on September 23, which may provide further insight into the central bank’s policy outlook.
Wedbush analyst Seth Basham cautioned that conflicting Fed signals could spark volatility, especially around labor and inflation data.
