Mortgage rates just touched their lowest level since last October, fueling a wave of optimism across the housing market and sending homebuilder stocks surging as traders increasingly price in imminent Federal Reserve rate cuts.

ITB ETF is breaking past resistance. Check the chart here.

The average 30-year fixed mortgage rate has slipped to 6.58% as of Aug. 14, dropping 5 basis points from the prior week, according to Freddie Mac data. That's the lowest level in 10 months and a welcome relief after a year of sticky rates that stifled demand.

"Mortgage rates fell to their lowest level since October," said Sam Khater, chief economist at Freddie Mac. "Purchase application activity is improving as borrowers take advantage of the decline in mortgage rates."

Behind the recent rate retreat is a shift in market expectations for interest rates.

Traders are increasingly confident in a potential Fed interest rate cut as early as September. Fed futures are currently pricing in a 91% chance of a 25-basis-point rate cut next month. A second cut in December is priced in at an 88% chance, according to the CME FedWatch tool.

"The markets are signaling that September is the odds-on favorite for the first of two rate cuts this year," said Bob Schwartz, senior economist at Oxford Economics, in a recent report.

Lower borrowing costs are already thawing out a frozen housing market. Homeowners who locked in low rates in the decade after the Great Recession have been hesitant to move, constraining supply and suppressing sales.

But Schwartz said the recent drop may be enough to unlock activity even without a steep fall.

Wall Street Backs The Builders: Berkshire Hathaway Bets On The Recovery

As mortgage rates dip, homebuilder stocks are taking off.

The SPDR Homebuilders ETF has outpaced the Vanguard S&P 500 ETF by 9% so far in August, on track for its best monthly performance relative to the broader market since July 2024.

That strength follows a brutal drawdown. The XHB ETF had underperformed the broader market by nearly 30% from its October 2024 highs—the worst relative downturn since the third quarter of 2007.

But now, the index is clawing its way out of a multi-year low.

Adam Turnquist, chief technical strategist at LPL Financial, said falling rates, stronger economic data and improving trade conditions have fueled a turnaround since April.

From a technical view, the index has reclaimed its 200-day moving average and is pushing toward a breakout above the January high. A close above that level could trigger a run toward the 2024 peak.

The latest 13F filings added even more fuel to the fire.

Warren Buffett's Berkshire Hathaway increased its stake in Lennar Corp. ( LEN ) to roughly $800 million, buying an additional 5.1 million shares in the second quarter. While Berkshire slightly reduced its position in D.R. Horton Inc. ( DHI ) , the firm still holds nearly $191 million in shares.

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