*

Housing stock index outperforming broader market in Q3

*

30-year mortgage rate down to lowest since Oct 2024

*

Economic data in coming week includes new, existing home

sales

By Lewis Krauskopf

NEW YORK, Sept 19 (Reuters) - As the U.S. Federal

Reserve restarts interest rate cuts, housing shares are one of

the areas of the stock market that may benefit, and they have

perked up in recent weeks as markets priced in more monetary

easing.

On Wednesday, the U.S. central bank lowered its benchmark rate

for the first time since December and indicated more cuts would

follow as it tries to shore up a shaky labor market.

The Fed's move stands to help interest-rate sensitive areas such

as small-cap and consumer discretionary shares. Homebuilder

stocks could also benefit if monetary easing translates into

lower mortgage rates and more robust economic activity that

helps the struggling housing sector, investors said.

"The Fed is rebooting the easing cycle," said Angelo

Kourkafas, senior global investment strategist at Edward Jones.

"If we think about areas that may stand to benefit from that...

homebuilders is one of them."

The S&P 500 ended on Friday at record high levels, up

over 13% on the year, after the Fed cut its benchmark rate by a

quarter of a percentage point to the 4-4.25% range. On Thursday,

the small-cap Russell 2000 posted a record-high close for

the first time in nearly four years.

Some investors hope the restart of monetary easing will

boost economically sensitive stocks, broadening market

leadership beyond the megacap technology companies that have

driven indexes higher.

The PHLX Housing index has jumped 15% so far this

quarter, against an over 7% gain for the S&P 500, although the

housing gauge still trails the benchmark stock market index on a

year-to-date basis.

Big gainers this quarter include DR Horton ( DHI ), up over

30%, and KB Home ( KBH ) and Toll Brothers ( TOL ), both up over

20%. Home improvement retailers Lowe's and Home Depot ( HD )

are up about 20% and 13% so far in the quarter.

The Mortgage Bankers Association said this week that the

contract rate on a 30-year, fixed-rate mortgage fell to 6.39% in

the week ended September 12, the lowest since early October

2024, while analysts at Keefe, Bruyette & Woods projected that

the mortgage rates could approach 6% by year-end.

The Fed's move to lower interest rates comes amid signs of

struggle in the housing market. U.S. single-family homebuilding

plunged to a near 2-1/2-year low in August, data on Wednesday

showed. Fed Chair Jerome Powell described housing sector

activity as "weak" in a press conference after the central

bank's policy decision.

"If you can get some of those mortgage rates to come down,

maybe that breathes a little bit of life back into the housing

market," said Jack Janasiewicz, lead portfolio strategist at

Natixis Investment Managers Solutions, adding that getting

mortgage rates down in the 5% range was an important threshold.

Investors cautioned that a lower Fed funds rate may not reduce

mortgage rates by the same extent, because mortgage rates are

more tied to the 10-year U.S. Treasury yield, which

is influenced by broader factors. The 10-year Treasury yield was

last around 4.13%, down from 4.6% in May.

The extent of Fed rate reductions this year remains

unclear, as persistently firm inflation could prompt the central

bank to keep rates higher.

Data in the coming week will shed more light on the housing

market, including on existing and new home sales.

"A good housing turnover is generally good for economic

activity," said Paul Nolte, senior wealth adviser and market

strategist at Murphy & Sylvest Wealth Management. "So we'd like

to see those numbers rising consistently."

Economic data next week includes an updated read of

second-quarter gross domestic product, manufacturing and

services sector reports, and the personal consumption

expenditures price index, a closely watched inflation gauge,

while investors will also be watching remarks from Powell on

Tuesday.

With the central bank noting it is not on a preset path and

a disparity among Fed members about the expected trajectory of

rates, "this likely means there will be volatility around

forthcoming economic data - especially data on the labor market

and inflation," Seth Basham, director of equity research at

Wedbush, said in a note.