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Toll Brothers, KB Home Lead Gains as Housing Stocks Climb

Toll Brothers (TOL) - ★★★★ - Ranked #37 in Q2 2024 Equity SMID Rankings

KB Home (KBH) - ★★★★ - Ranked #29 in Q2 2024 Equity SMID Rankings

Shares of major U.S. homebuilders like Toll Brothers and KB Home rallied sharply on Wednesday, with both stocks up more than 5% in intraday trading. The broader PHLX Housing Index (.HGX), which tracks housing-related stocks, jumped 2.6% to hit its highest level since April 4th.

The homebuilder rally was fueled by an encouraging report on U.S. inflation. Consumer prices rose just 0.1% in May from the prior month, coming in below economists' expectations. The better-than-expected inflation data strengthened the case for the Federal Reserve to implement additional interest rate cuts at its September meeting.

If the Fed does cut rates again, it would likely put downward pressure on mortgage rates. Lower borrowing costs for home loans could provide a significant boost for homebuilders by improving housing affordability and buyer demand. The prospect of easing interest rates and more attractive mortgage rates appeared to excite investors in the homebuilding sector.

While the inflation report was certainly positive news, the housing market still faces significant headwinds from high home prices, limited supply, and economic uncertainty. But for now, homebuilders are basking in the potential for lower rates to reinvigorate buyer demand.

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