US homebuilder stocks remain in focus after an Evercore ISI analyst, Stephen Kim, downgraded six of them, citing near-term headwinds despite the sector posting robust profitability and capital returns.
According to him, the policy shifts could hurt valuations. “It’s unfortunate for the homebuilders,” he told CNBC, pointing to government efforts that may inadvertently pressure sector margins.
While US construction stocks have already pulled back rather significantly over the past month, Kim believes the current policy environment – combined with softening demand – could dampen sentiment heading into 2026.
US government has it wrong on homebuilder stocks
Stephen Kim argues the administration’s focus on supply-side solutions to housing affordability is misguided.
“We don’t actually have a supply problem right now,” he said. “If they had gotten builders to build a lot more, maybe three or four years ago, that would have been different.”
Instead, Kim sees a demand-side issue, exacerbated by elevated mortgage spreads and cautious consumer sentiment.
The government’s belief that construction companies are deliberately underproducing homes to maintain profitability misses a critical point: the market lacks sufficient buyer demand.
“You’re now slamming the gate shut when the horse has already left the barn,” Kim added, warning policy pressure could hurt margins without solving affordability – potentially leading to continued downside in US homebuilder stocks.
Why construction stocks still look for the long term
Despite near-term challenges, the Evercore ISI analyst remains bullish on the sector’s long-term prospects.
“We believe the homebuilders deserve and will get a revaluation to higher multiples than they have historically received,” he said.
Construction firms have become more asset-light, improved operational efficiency, and gained competitive advantages over smaller peers.
Kim points to NVR as a model for the industry, noting that others are following in its footsteps.
“If you compare them across almost any metric that matters relative to their S&P peers, they outperform – but they trade at a fraction of what the other peers trade,” he explained.
This disconnect, he believes, will correct over time as investors recognize the sector’s structural improvements – triggering meaningful upside in US construction stocks over the longer term.
How to play US homebuilder stocks heading into 2026
As 2026 approaches, investors in US homebuilder stocks face a complex landscape.
On one hand, operational excellence and disciplined capital allocation suggest long-term upside.
On the other hand, policy risks and weak demand could suppress valuations in the short run.
“You cannot disregard what the government and the administration are seeking to do here,” Kim cautioned.
For now, the real estate sector may be caught in a tug-of-war between fundamentals and politics.
But for those willing to look past the noise, the groundwork for a multi-year revaluation may already be in place in the US homebuilder stocks.
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