The National Association of Home Builders (NAHB) reported the housing market index for September at 32, which is slightly below the expected 33. Housing starts for September stayed the same as last month at 32. The current sales conditions also remained stable at 34, reflecting no changes.

Buyer Traffic

Buyer traffic decreased by one point, reaching a total of 21. However, future sales expectations improved by two points to 45. The NAHB expects the Federal Reserve to cut interest rates at its next meeting. The housing market index’s failure to meet expectations, remaining at a low of 32 for September, suggests ongoing weakness in the housing sector due to affordability issues. The drop in buyer traffic to 21 highlights the challenges faced by homebuilders. The current weakness in housing is mainly due to high finance costs. The 30-year fixed mortgage rates have stayed around 6.7% for most of the third quarter. This persistent pressure on buyers has led to the weak sentiment among builders. Many, including the NAHB, now expect the Fed to ease monetary policy.

Federal Reserve Meeting

The focus tomorrow is on the Federal Reserve’s decision, where the market predicts a high chance of a rate cut. This expectation is reinforced by the cooling August CPI data, which fell to 3.1%. The NAHB’s clear expectation for a cut strengthens this belief. We should be ready for increased market volatility following the announcement. For traders, this presents an opportunity in interest rate derivatives, especially options on SOFR futures. With a 25-basis-point cut widely expected, preparing for a more dovish statement could be a smart move. We feel that the risk leans toward the Fed suggesting a more extended easing cycle than currently believed. Volatility is also a trade, as the VIX is creeping up to 17 ahead of the meeting. If the Fed delivers the expected cut without surprises, we might see a “volatility crush” as uncertainty fades from the market. Selling option premiums with strategies like iron condors on broad market indices could be an effective approach. We’re also monitoring options on homebuilder ETFs like XHB. The report’s good news was a slight rise in future sales expectations, which could grow with a Fed rate cut. Call options on these could see a notable short-term increase if the Fed indicates that this cut is just the beginning. Looking back, this situation resembles the Fed’s pivot in 2019, when it began a “mid-cycle adjustment” to support a slowing economy. That adjustment positively impacted risk assets as policy became more accommodating. A similar scenario could unfold in the upcoming weeks if the Fed confirms a dovish stance tomorrow. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now