Homebuilder Stocks Poised for Market-Beating Returns, Wall Street Says

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This year’s rally in homebuilding stocks has outstripped even the AI-fueled tech boom, and if analysts are to be believed, that outperformance is set to continue.

Wall Street price targets show an expected return potential of 16% over the next 12 months for US homebuilders, ahead of the 13% seen for the broader market and the tech-heavy Nasdaq 100 Index. That’s on top of 2023’s 47% surge in builders’ stocks, which has already surpassed the Nasdaq’s 41% climb.

Among builders with at least three brokers covering the firm, Cavco Industries Inc. — a maker of RVs and manufactured homes — has the highest expected return, followed by Meritage Homes Corp., Tri Pointe Homes Inc. and industry giant D.R. Horton Inc. The 20 analysts covering luxury homebuilder Toll Brothers Inc., which reported its third-quarter results last Tuesday, have an average expected return of roughly 14%.

Wednesday’s gains came on the heels of a US pending home sales readout, which serves as a leading indicator. Data showed contract signings to buy existing homes staged a surprise advance for a second straight month in July. But the uptick is still not strong enough to convince prospective homebuyers that the resale market is seeing better days.

Meanwhile, homebuilders continue to offer incentives to reduce the financial burden attributed to rising rates, making it harder for desperate buyers to resist.

 

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