Investing.com - Homebuilders were building up momentum Tuesday, buoyed by positive U.S. housing data and expectations the Federal Reserve will rein in its outlook on rate hikes.
Shares of DR Horton (NYSE:DHI), PulteGroup (NYSE:PHM) and Lennar Corporation (NYSE:LEN) rallied as investors cheered data showing housing starts and building permits for November topped economists' expectations.
"The relatively strong permits numbers suggest that homebuilders think the fall in sales will prove temporary, probably because much of it has been triggered by the two hurricanes and the wildfires, while mortgage demand has strengthened," Pantheon Macroeconomics said in a note.
Homebuilders were also supported by expectations the Federal Reserve will adopt a more dovish stance on monetary policy on Wednesday when it reveals a decision on interest rates, along with projections on several measures, including future rate hikes.
Rising interest rates pushed mortgage rates to 4.9%, an eight-year high, in November, weighing on homebuilders, But they've since retreated to around 4.6% in recent weeks.
The SPDR S&P Homebuilders ETF (NYSE:XHB) rose 2.5%, but remained down more than 20% over the past year.