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Has Decline in Homebuilder Stocks Created Opportunity?

What Morningstar's analyst thinks of D.R. Horton, Lennar, and Toll Brothers today.

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U.S. homebuilder stocks have had a dreadful start to 2022, underperforming the Morningstar US Market Index by nearly 10% year to date as of Feb. 4. We believe the market has become fearful that rising interest rates will soften housing demand and homebuilder earnings power has peaked. We can't say we totally disagree with this thesis. The combination of high home prices and rising mortgage rates reduces homeownership affordability and will price some prospective buyers out of the market. We also don't think recent lofty homebuilder gross profit margins will persist over the longer term. However, in our view, the market is now pricing in an overly bearish outlook and the homebuilder sell-off has been too punitive.

Brian Bernard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.