Housing Stocks Slide as Margins and Demand Erode—Time to Exit or Double Down?
MarketBeat.com | May 05, 2025 02:25PM ET
When investors think of the financial markets, they often make the dire mistake of looking at the spectrum of stock indexes and perhaps futures as well (since they’ve become more popularized now). However, any and all prices that flash through the screen are only the collective opinion of what is happening in the background.
This specific background is the United States economy, which comprises many different moving parts.
Today’s focus will be on the housing market since the real estate sector is one of the backbones of the broader economy and likely one of the drivers of what the stock market does outside of the names and companies directly affected by the underlying developments in this space. There have been some signs in these names that are enough of a cause for concern today, and with this new information, better decisions can be made in and out of portfolios.
By tracking the price action in the homebuilders exchange-traded fund, a subtle sign of weakness has been given to the broader markets, and the implications are starting to show in the fundamentals for companies like Builders FirstSource as well as some of the homebuilders like PulteGroup (NYSE:PHM), with a few other lateral stocks that can be combined into a sort of basket to track the present and future of housing.
Starting From the Top Chain
Before any foundation is poured and building permits are approved, there needs to be enough building materials to start new construction in housing. Because of this fundamental reasoning, investors can—and should—look to the material providers first.
One of these names is Builders FirstSource Inc (NYSE:BLDR), a stock that recently reported its latest quarterly financials. The market reacted by selling the stock down by as much as 5.1% to indicate further weakness in the middle and bottom end demand for new real estate construction.
Looking into the press release for the financial figures, investors can notice right off the start that net revenues declined by as much as 6% compared to the same quarter last year, not an encouraging start, to say the least. The low demand state of affairs has also affected the company’s buying power, to which investors can point to a 2.9% decrease in gross profit margins.
All told, earnings per share (EPS) were reported at only $0.84 compared to $2.10 in EPS for the same quarter last year, justifying the fall in the stock price. There is another important name at play when it comes to the top chain of demand in housing materials, and that is Cemex SAB (NYSE:CX) de CV (BMV:CEMEXCPO).
CEMEX is a Mexican concrete exporter, with a large portion of sales going into the United States. This company also announced in its recent quarterly earnings release that sales of concrete and cement to the United States market contracted by as much as 4% over the year, another sign of potential weakness in housing demand moving forward.
Where Homebuilders Stand
Homebuilding stocks are worth considering when it comes to the reality of past materials. Starting with the broader exchange-traded fund, investors may note that this basket has been declining since November 2024, delivering a net decline of 12% over the past quarter.
Supposedly, housing names are the safest and most stable ones, but not all are built equally (literally). Some portfolios are focused on non-cyclical properties, while others are subject to the ebbs and flows of residential housing appetites, which is why this ETF is down so much.
However, focusing on residential builders specifically through PulteGroup stock makes the story a lot clearer. This name has also delivered a double-digit decline since November 2024, amplifying the fall to 22%, compared to the broader market index’s fall of only 1.6%.
Clearly, there is no preference or room for homebuilders today, as the material providers' warnings came (and are still coming). More than that, it seems that the downside move is not over yet, as PulteGroup’s short interest has increased by 9.4% over the past month, a sign of increased short positioning ahead of further potential declines.
These trends should come as no surprise to investors today, now that the average home price keeps on rising while mortgage rates remain at decade highs. This creates an unaffordability lockup that keeps sellers from bringing inventory into the market while fighting off any would-be homebuyers from today’s impossible market.
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