Traders Turn Bullish on Housing Stocks Again—3 Leading the Way

Key Points

• Some tailwinds have now shown up to create a potential recovery in the real estate sector, with a special focus on the homebuilding industry.
• Three stocks stand out as options traders jump in for the broader homebuilder ETF, creating outsized return opportunities. 
• Wall Street agrees as institutions start buying, and analysts become optimistic on future price targets.

After being left behind on the broader S&P 500 rally, it seems the real estate sector is now cold enough (and cheap enough) for some Wall Street participants to start considering it again. This time around, spotting unusual call options trading activity can lead investors to where these high convictions are for the market, especially in the homebuilding industry.

The SPDR S&P Homebuilders ETF NYSEARCA: XHB has reported an unusual level of interest coming from options traders on the call side, which is fundamentally a bet that the entire space is going to see higher prices in the coming months.

Spotting these trades is crucial due to options' inherent leverage and expiration, which raises the stakes even higher for those who invest a substantial amount of capital in any given idea.

However, those investors looking for the outsized return opportunities in homebuilding names could (and should) do some individual stock picking for their portfolios, which is where today’s list comes into play. Builders like PulteGroup Inc. NYSE: PHM, Lennar Corp. NYSE: LEN, and Toll Brothers Inc. NYSE: TOL are at the top of the queue, primed for the next wave of market action.

Momentum Has Shifted for PulteGroup Stock

Even though this homebuilder still trades at only 78% of its 52-week high level, keeping it within an official bear market, the recent price action seems to show a potential underlying change happening right now. Over the past quarter, this stock has delivered a net return of 11.7%, indicating a slightly more positive sentiment to investors.

With this price action in mind, it shouldn’t be a surprise for investors to see some institutions focused on these momentum strategies have bought into PulteGroup stock recently. As of late July 2025, those from Nordea Investment Management have justified a 2.8% boost in their PulteGroup holdings, bringing their stakes to a high of $94 million today.

Perhaps it is the housing market's bottoming cycle, with data from building permits to mortgage applications showing a potential turnaround for the second half of 2025. The catalyst behind this shift could be credited to the Federal Reserve and the speculation that interest rate cuts could be hitting the economy in this time horizon.

Knowing these factors are at play for this homebuilder, UBS analyst John Lovallo decided to express his optimism on the future of the company through a Buy rating. This view came coupled with a valuation boost to $150 per share. From where the stock trades today, this call implies an additional upside potential of 29%.

EPS Growth Could Send Lennar Stock Soaring

One of the main drivers behind a stock’s price action is its underlying earnings per share (EPS) growth rate. Lennar stock has grown enough to make investors consider a new potential ceiling in the company’s valuation.

Compared to today’s reported $1.90 in EPS, Wall Street analysts and their forecasts for $3.09 in EPS for the fourth quarter of 2025 imply that Lennar could deliver a net EPS growth rate of roughly 60% to justify a similar jump in the stock’s price action in percentage terms.

Whether this scenario unfolds will depend on the fundamental setups and catalysts at play, particularly a rebound in housing data, such as permits and mortgage applications, which will be directly influenced by the Fed's decisions before 2025.

As of the company’s latest quarterly results, it seems that this turnaround might be taking on water, considering that new orders reached 22,601 total homes for an annual growth rate of 6%, not a figure that is expected from a slowing business.

Short Sellers Admit Toll Brothers Stock Is Headed Higher

Over the past month alone, 9.1% of Toll Brothers’ short interest declined in a sign of potential bearish capitulation, especially as more and more participants realize that the macro backdrop has now created an asymmetrical setup that favors the bulls over anyone else.

With this setup in mind, it should be expected that some investors in the market are now willing to take advantage of this opportunity, especially now that the stock has traded down to only 72% of its 52-week high, to amplify the fact that it is a fantastic risk-to-reward ratio for buyers to take advantage of.

Allocators from Jennison Associates justified adding an extra 11.2% to their overall Toll Brothers stock holdings as of August 2025, a recent transaction that netted their position to a high of $81.5 million today, also making them one of the largest institutional holders of the company as of today’s terms.

It appears that the conviction behind the SPDR S&P Homebuilders ETF can be particularly focused on these three homebuilders, giving investors an unfair advantage before the rest of the market catches up on this trend.