Economy & Fed
Homebuilder stocks rally as Treasury yields fall on AI spending doubts
Homebuilder shares surged on Thursday as investors moved money from AI-linked stocks into Treasuries, pulling the 10-year yield down to 4.96% and raising the prospect of cheaper mortgages.
Quick Read
- Homebuilder stocks surged on Thursday as the 10-year Treasury yield slid 17 basis points to 4.96%.
- Reports tied the bond rally to doubts that AI spending may hold up beyond next year, and the Nasdaq-100 slid 2.9%.
- Lower yields could ease mortgage quotes, but only if the drop lasts.
- The Fed's rate decision on Wednesday, Oct. 28, is the next scheduled test for yields.
What happened to homebuilder stocks?
Homebuilder shares posted large gains on Thursday, Oct. 22, as Treasury yields fell. The iShares U.S. Home Construction ETF (Cboe BZX: ITB) surged 5.4%. An ETF is a fund that trades on an exchange like a stock. ITB closed at $91.24.
Why it matters: Large builders led the move. Lennar (NYSE: LEN) surged 8.7%, and D.R. Horton (NYSE: DHI) surged 6.2%. KB Home (NYSE: KBH) gained 7.4%.
By the numbers: The wider market told a different story. The tech-heavy Nasdaq-100 slid 2.9%. The S&P 500, the index of large U.S. companies behind many 401(k) funds, slid 1.2%.
Why did Treasury yields fall?
Investors moved money out of AI-linked stocks and into U.S. government bonds. Reports tied the shift to worries that spending on artificial intelligence may not hold up beyond next year. The technology sector fund (XLK) tumbled 3.3%.
Buying bonds pushes their prices up and their yields down. A yield is the yearly interest a bond pays, measured against its price. The 10-year Treasury yield slid 17 basis points, closing at 4.96% after 5.13% the day before.
The drop took the 10-year yield below a closely watched level it had held above in recent weeks. Shorter-term rates fell as well. The 2-year Treasury yield slid 16 basis points.
Why do lower yields matter for homebuilders?
The 10-year yield is a reference point for 30-year fixed mortgage rates. When it falls, lenders' quotes may follow, often with a lag. Cheaper loans could make homes more affordable, which may help builders sell more houses.
The gains came from a low base. Even after Thursday, Lennar closed 36.6% below its 52-week high. KB Home sat 30.4% below its own peak, and the home construction fund was 19.7% under its high.
Rate-sensitive property stocks also rose more broadly. The real estate sector fund (XLRE) jumped 1.1%.
Did every property stock gain?
No. CBRE Group (CBRE) slid 2.5% and closed at $131.24. Lower yields did not lift every company tied to real estate.
The cause of the bond rally also leaves an open question. Yields fell partly because investors grew less sure about AI spending, a large source of business investment. If that doubt spreads to the wider economy, it could weigh on home demand too.
Lower yields help buyers only if they last. A rebound in the 10-year yield could push mortgage quotes back up and erase some of the builders' gains.
What could homebuilder stocks face next?
The Federal Reserve announces its interest-rate decision on Wednesday, Oct. 28, at 2:00 p.m. ET, followed by the chair's press conference. The Fed sets short-term rates, while bond trading sets the 10-year yield. The decision could still move it.
On Thursday, Oct. 29, at 8:30 a.m. ET, the government publishes its advance estimate of third-quarter economic growth. The same morning brings September income and spending data, including the PCE price index the Fed watches. The October jobs report follows on Nov. 6.
For readers
What it could mean for you: People who own a homebuilder or real estate fund, such as ITB, felt this move far more than holders of a broad index fund. These funds concentrate on companies whose sales depend on borrowing costs, so a shift in the 10-year yield can swing them sharply. If yields stay lower after the Fed's decision on Oct. 28, these funds could hold their gains. If yields rebound, Thursday's rally may fade. Even after the jump, the home construction fund remains well below its 52-week high.
Questions and answers
Why did homebuilder stocks rise?
Treasury yields fell as investors moved money from AI-linked stocks into bonds. Mortgage rates tend to follow the 10-year yield, so lower yields could make home loans cheaper and help builders sell homes.
Where is the 10-year Treasury yield now?
It closed at 4.96% on Thursday, Oct. 22, down from 5.13% the day before.
Will mortgage rates fall after the drop in yields?
Quotes on 30-year fixed mortgages tend to track the 10-year yield, so they may ease if the lower yield holds. A rebound in yields could reverse that.
When is the next Federal Reserve decision?
The Fed announces its rate decision on Wednesday, Oct. 28, at 2:00 p.m. ET, followed by the chair's press conference.
The numbers
| iShares U.S. Home Construction ETF (ITB) price | $91.24 |
|---|---|
| iShares U.S. Home Construction ETF (ITB) change | +5.39% |
| iShares U.S. Home Construction ETF (ITB) 52-week high | $113.57 |
| Lennar (LEN) price | $84.45 |
| Lennar (LEN) change | +8.69% |
| Lennar (LEN) 52-week high | $133.13 |
| D.R. Horton (DHI) price | $147.66 |
| D.R. Horton (DHI) change | +6.25% |
| D.R. Horton (DHI) 52-week high | $167.78 |
| S&P 500 change | −1.21% |
| 10-year Treasury yield | 4.96% |
Thursday’s close
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Not investment advice.
