Barclays Downgrades U.S. Homebuilding Stocks

On Wednesday, Barclays (LON:BARC) downgraded the ratings of several U.S. homebuilding stocks:

• DR Horton Inc (NYSE:DHI)
• Lennar Corporation (NYSE:LEN)
• PulteGroup Inc (NYSE:PHM)
• KB Home (NYSE:KBH)

The ratings were changed from Overweight to Equal Weight as Barclays expects an increase in new and existing home inventory, leading to flattening home prices and persistently elevated incentives.

However, Barclays upgraded Taylor Morrison Home (NYSE:TMHC) to Overweight, citing relative valuation, and pointed out that building products & distributors are expected to outperform due to their end markets nearing a trough. Additionally, Owens Corning Inc (NYSE:OC) was upgraded to Overweight, and Barclays maintained Overweight ratings for other key players including Azek Company Inc (NYSE:AZEK) and Ferguson Enterprises (NYSE:FERG).

In its note, Barclays stated: "We move to the sidelines on homebuilder stocks entering 2025 but expect building products and distributors to outperform homebuilders and the market, leading us to maintain our Positive industry view."

After two years of strong stock performance and a remarkable market recovery despite high interest rates and affordability challenges, Barclays believes the new construction market has now reached a ceiling.

For the upcoming year, Barclays forecasts:
– Single-family housing starts: +2%
– Multifamily starts: -2%
– Repair & Renovation spending: +1%
– Existing home sales: +6%