Homebuilders: Oversold, Undervalued, and Ready to Run?

Key Points

• Homebuilding stocks show signs of a turnaround, with the XHB ETF breaking its downtrend and gaining momentum.
• Valuations across the sector remain compelling, with major players like Lennar, Toll Brothers, and PulteGroup trading at P/E ratios below eight and offering attractive upside potential.
• Technical setups are improving, as several top homebuilders form potential bottoms, signaling renewed investor interest.

Homebuilding stocks have had a rocky start to 2025, underperforming the broader market amid persistent macroeconomic uncertainty and elevated rates. However, that trend might finally be turning. The SPDR S&P Homebuilders ETF NYSEARCA: XHB, which tracks the performance of the homebuilding sub-industry, has recently broken out of its prolonged downtrend and is starting to build momentum above key moving averages.

This renewed technical strength is supported by improving sentiment and signs that some of the ETF’s top holdings have also formed bottoms and are beginning to recover. With several names in the space trading at value-attractive levels, many investors are now asking: Are homebuilding stocks too cheap to ignore?

Sector Outlook Is Improving

The XHB ETF is still down about 3% year-to-date, lagging the broader market. However, optimism around a potential rebound and easing trade tensions is improving the sector's outlook. The recent 90-day trade truce between the U.S. and China helped lift investor confidence, reducing fears of a broader economic slowdown.

Adding fuel to the fire, April’s Consumer Price Index (CPI) came in at an annualized rate of 2.3%, marking the third month of cooling inflation. With inflation edging closer to the Federal Reserve’s 2% target, hopes are rising that the Fed could begin cutting rates in the months ahead. An environment and move that typically benefits homebuilders by lowering mortgage rates, building costs, and increasing housing demand.

Against this backdrop of improving macro conditions and technical setups, let’s look at three popular homebuilding stocks that may offer compelling value and upside potential.

Lennar Corp.: Too Cheap or a Value Trap?

Lennar NYSE: LEN is down about 14% year-to-date and continues to trade below key resistance levels, struggling to break out of its downtrend.

Despite this, the stock is now trading at a compelling P/E of just 8.18, offering a dividend yield of 1.78%.

Lennar reported Q1 2025 earnings in March, posting EPS of $2.14, beating estimates by $0.44,  and revenue of $7.63 billion, a 4.4% increase year over year. Analysts remain cautiously optimistic on LEN.

While the stock carries a Hold consensus rating from 19 analysts, the average price target implies a potential 33% upside.

Investors will want to see LEN reclaim support above $120 to confirm a reversal. A sustained move above that level could mark a significant trend change for one of the industry’s largest players.

Toll Brothers Inc.: Technical Break Signals Reversal

Toll Brothers NYSE: TOL, known for its luxury residential and commercial developments, is also down around 13% year-to-date.

However, unlike Lennar, TOL has recently broken above its short- and medium-term moving averages, a constructive sign that the stock may have bottomed. 

It still sits below its 200-day SMA, but technical momentum is improving.

Valuation-wise, TOL trades at a P/E of just 7.5 and offers a dividend yield of 0.91%. Analysts are increasingly bullish, with a Moderate Buy rating and a consensus price target of $144.79, representing about 32% upside from current levels.

PulteGroup Inc.: Clean Breakout, Strong Fundamentals

Among the three, PulteGroup NYSE: PHM arguably shows the strongest technical setup.

The stock has not only broken its downtrend but has held above it for several weeks, signaling firm buyer interest and a potential trend reversal.

PHM trades at a forward P/E of 7.5 and pays a dividend yield of 0.79%.

In its Q1 2025 earnings, PulteGroup reported EPS of $2.57, beating estimates by $0.10, on revenue of $3.89 billion, slightly above expectations.

Analysts also see upside, with a Moderate Buy consensus and an average price target of $134.69, suggesting 27% upside potential.