Wall Street betting on housing stock

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Wall Street betting on housing stock

PulteGroup's Ryan R. Marshall and RedFin's Glenn Kelman (PulteGroup, RedFin, Getty)

PulteGroup’s Ryan R. Marshall and RedFin’s Glenn Kelman (PulteGroup, RedFin, Getty)

Housing stocks have tumbled for much of the year, but recent signs inflation is easing spurred a small rebound.

Softening inflation led investors to pile into housing stocks in recent weeks despite the downturn in the sector, the Wall Street Journal reported. Wall Street’s movement is hinged on hope for the Federal Reserve to slow ongoing rate hikes aimed at clamping down on inflation.

Since Nov. 9, the S&P 500 rose 5.8 percent through Friday’s closing bell. In that same period, shares for other brokerages, builders and mortgage lenders have outpaced the S&P 500, including brokerage Redfin’s shares rising more than 50 percent and home builder PulteGroup’s shares jumping 11 percent.

Redfin has been on a rollercoaster as of late. On Nov. 9, the company announced it was shuttering its iBuying business and laying off 13 percent of its staff, one of many brokerages to make cuts as mortgage rates soared and buyers vanished. One day later, the Labor Department revealed inflation reached its slowest pace in nine months.

That same day, Redfin’s stock rose 32 percent. The next day, it jumped another 21 percent. Despite its gains, the stock is still down 87 percent this year, demonstrating how far some housing stocks have dropped in recent months.

Investors aren’t banking on big improvement in the short-term performances of real estate companies, many of which are gearing up for continued difficulties in the near future. Instead, they’re hoping less Fed activity will calm the housing market and restore forward momentum to the sector.

“Do we think we’re going to make a lot of money on the home builders in the next three to six months? The answer is: We don’t know and we don’t assume we are,” Smead Capital Management CIO Bill Smead told the Journal. “But over the next 10 years we think we’re going to get rich in the home builders.

After passing 7 percent in a 21-year high, the average 30-year fixed-rate mortgage rate took its biggest drop in 41 years last week. The jump to 6.6 percent, which came amid a change in Freddie Mac’s methodology, was “welcome news,” chief economist Sam Khater told Bloomberg, but “there is still a long road ahead for the housing market.”

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