Here's an overlooked reason the housing market could soon get even worse

MW Here's an overlooked reason the housing market could soon get even worse

By Tomi Kilgore

Seaport analysts says the 'bottoming process' it previously saw appears to have come undone due to the weak outlook for job growth

A Seaport analyst has turned bearish on multiple home-builder stocks, saying the outlook for job growth could be worse for the housing market over the long term than the recent jump in oil prices.

Shares of home builders were losing ground in early Tuesday trading after a Seaport analyst downgraded all the stocks he covered, giving up on his previous view that housing demand was starting to bottom.

Wall Street has been focused on the recent surge in oil and gasoline prices, which reduces the buying power of potential home buyers, but that's not the main reason for analyst Kenneth Zener's U-turn on home builders. What undermines the view that demand for new homes was stabilizing, he said, is data showing that job growth has been weak and that the break-even employment rate - the hiring needed to offset job losses - appears to be in long-term decline.

And he believes that concern has not yet been priced in to the sector. For that reason, he swung to bearish on five home-builder stocks and neutral on three, after previously being bullish on seven stocks and neutral on one.

"We acknowledge the reactive appearance of this call, but what we interpreted as a bottoming process, akin to prior cycles last year, appears less so now," Zener wrote in a note to clients.

"A lower job rate represents a significant, and we think still un-priced risk, to the housing sector," he added.

The stocks whose ratings he flipped to sell from buy were those of PulteGroup $(PHM)$, Lennar $(LEN)$, Taylor Morrison Home (TMHC) and KB Home (KBH). He downgraded the stocks of D.R. Horton $(DHI)$, Toll Brothers $(TOL)$ and M/I Homes $(MHO)$ to neutral from buy and cut his rating on NVR's stock $(NVR)$ to sell from neutral.

He said that unless there's a correction, recent city-centered jobs data and research from the Federal Reserve showing that the neutral job rate could be in long-term decline portend a negative effect on entry-level housing demand, and that lower demand will hurt home-builder profitability for longer despite builders' efforts to stabilize margins as they wind down supply.

Also read: Buyers finally have leverage in the housing market. Here are 3 smart ways to use it.

The latest government data on single-family housing starts showed a 2.8% monthly decline to an annual rate of 935,000. Zener now believes that rate likely won't bottom out until it gets close to past recessions' median rate of 783,000.

"[L]ow population growth and a lower neutral job rate, does imply the housing demand curve is lower, thus our reset is logical, despite the under-built and demographics tailwinds that are often cited," and despite home builders' improving operating metrics, Zener wrote.

While the home-building sector has underperformed the broader stock market this year, it was mostly because of weakness seen since the start of the Iran conflict amid worries that surging gasoline prices would push potential home buyers to the sidelines.

The iShares U.S. Home Construction exchange-traded fund ITB has lost 7.1% this year as of recent morning trading on Tuesday, but that was after a 16.8% tumble since the end of February. The S&P 500 index SPX has declined 4% in 2026 and has shed 4.5% since the end of February.

Despite that selloff in recent weeks, Zener doesn't believe the sector has been "de-risked" enough to consider buying home-builder stocks without an improvement in the job market.

While uncertainty regarding oil prices and inflation as a result of the Iran conflict adds volatility, he said his focus on job growth shifting on a long-term basis "is a fundamental lens that serves investors well in time."

-Tomi Kilgore

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April 07, 2026 10:15 ET (14:15 GMT)

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