Barclays cuts homebuilding stocks on flattening home prices, elevated incentives

Barclays (LON:BARC) on Wednesday downgraded the ratings of some U.S. homebuilding stocks DR Horton Inc (NYSE:DHI), Lennar Corporation (NYSE:LEN), PulteGroup Inc (NYSE:PHM) and KB Home (NYSE:KBH) from Overweight to Equal Weight as it expects the rise in new and existing home inventory will lead to flattening home prices and persistently elevated incentives.

Barclays also upgraded Taylor Morrison Home (NYSE:TMHC) Corp to Overweight based on relative valuation and noted that building products&distributors will outperform, as their end markets are nearing a trough.

It also upgraded Owens Corning Inc (NYSE:OC) to Overweight and maintained Overweight ratings for key players including Azek Company Inc (NYSE:AZEK) and Ferguson Enterprises (NYSE:FERG).

“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,” Barclays said in a note.

For builders, following two years of relative stock outperformance and an unprecedented market recovery despite high interest rates and affordability challenges, Barclays believes the new construction market has now hit a ceiling.

For next year, Barclays forecast that single-family housing starts +2%, multifamily starts -2%, R&R spending +1%, and existing home sales +6%.