The homebuilder sector (XHB) is in focus as notable stocks continues to hold steady, though the impending Federal Reserve rate cuts raise questions about the impact on these companies. UBS US homebuilders & building products equity research analyst John Lovallo joins Market Domination to share his outlook.

Lovallo notes that homebuilders have been highly focused on maintaining sales volume, but this quarter "they showed some restraint" amid interest rate volatility. "I think it's that pace versus price-type formula that builders are always trying to optimize, and I felt like they did a very good job this quarter in doing so," he tells Yahoo Finance.

With high mortgage rates creating continued affordability issues, Lovallo notes that homebuilders have implemented effective incentives to attract homebuyers, such as mortgage rate buydowns. He notes that individuals purchasing homes from public homebuilders are often not paying the headline rate, but a lower one:

"That is a tool that these folks have in their toolbox that the existing home market cannot compete with, and frankly the smaller private builders can't compete with either," Lovallo says.

When discussing investment strategies, Lovallo names D.R. Horton (DHI) as a top pick, though he remains bullish across the homebuilder sector overall.

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This post was written by Angel Smith