Homebuilder stocks rallied Wednesday after the Federal Reserve's chairman said inflation is moderating, and government data showed new housing starts fell in June, which could help ease the inventory overhang in the U.S. housing market. But the sector's rally may simply be a "dead-cat bounce," which occurs when there is a temporary recovery from a prolonged decline, after which the group continues to fall. One hedge fund manager who invests in the space says Wednesday's action in builder stocks was likely a "short-covering rally" in reaction to Federal Reserve Chairman Ben Bernanke's testimony before Congress, which boosted the entire market. The manager points out that some of the builder names that saw the biggest bounce on the day were those with heavy short interest -- such as WCI Communities ( WCI), which jumped 7.7% The entire homebuilding group -- which had fallen about 15% since the end of last week -- rose on Wednesday. The rally may have also been helped by Ryland's ( RYL) earnings report. Even though Ryland reported a 39% order drop and cut its earnings guidance for the year, investors may have focused on the fact that the company's second-quarter earnings beat analysts' mean estimate. "It's a little bit of a relief rally," says Jack Lake, an analyst with Victory Capital Management, which owns builder stocks. "I don't know how long it persists." Whether the market perceives the Federal Reserve is close to the end of its rate-hike campaign could be a key consideration for the future performance of the group. Consumer-related stocks such as homebuilders and retail companies tend to outperform once the Fed either stops raising or cuts rates, Lake notes. Builders lately have been trading close to their book values, with some trading below. Historically, such levels have also been good points at which to buy the group, Lake says. Not everyone agrees, of course, and some analysts point out that the group traded down to 0.6 times book in the late 1980s, when the housing market tanked.