MW Homebuilder ETF on track to hit 5-month high despite bleak outlook for housing. Here's why.

By Aarthi Swaminathan

Wall Street was surprised by the builders' earnings results, one expert says

Homebuilder stocks rallied on Tuesday afternoon as earnings season kicked into high gear, despite a weak home-buying environment.

On the back of major American home builders D.R. Horton and PulteGroup reporting earnings, the iShares U.S. Home Construction ETF ITB rose 6.75% at today's intraday high.

ITB was on track to close at the highest level in five months. The ETF was also on pace for the largest jump since November 2022.

The ETF's top five holdings were homebuilding giants D.R. Horton (DHI), Lennar (LEN), NVR $(NVR)$, PulteGroup (PHM), and Toll Brothers (TOL). DHI was up 16% as of 2 p.m. on Tuesday, and PHM was up about 11%.

The jump is surprising given the weakness in the housing sector. Even though "the new home market has slowed a lot, with price declines in major markets like Texas and Florida, ... many of the biggest builders in the country continue to surprise Wall Street to the upside with how well they are running their businesses in this environment," John Burns, CEO of John Burns Research and Consulting, told MarketWatch. The company works with homebuilders.

In other words, the results "weren't as bad as investors were expecting, namely gross margins and the expectations around gross margins for the two builders that reported today," Rick Palacios Jr., director of research at John Burns, added, referring to DHI and PHM.

The other major homebuilder ETF, SPDR S&P Homebuilders ETF XHB, was also up 5.5%. XHB has a broader focus on home construction as compared with builder-focused ITB.

To be sure, builders are still facing several headwinds when it comes to selling newly-built homes.

Homebuying demand remains weak, which is the key reason why they are ramping up sales incentives and price cuts. Affordability is still strained as home prices and mortgage rates remain high. Economic uncertainty has also prompted some buyers to flee the market, and mortgage rates remain high at nearly 7%.

The Trump administration's tariffs also are expected to affect builders, with the National Association of Home Builders expecting them to add an additional cost of $10,900 per home. Builders are also still facing high financing costs due to elevated interest rates.

Furthermore, they have a lot of inventory to work through. Since ramping up construction in late 2023 and early 2024, builders were met with weak demand. Responding to lower demand, builders began cutting back on building new homes, but demand has fallen even more than they anticipated, Stephen Stanley, chief U.S. economist at Santander U.S., wrote in a July 18 note.

"Homebuilders have done yeoman's work to buoy new home sales. But it's no longer working, and sales and construction are set to slide," Mark Zandi, chief economist at Moody's Analytics, said on LinkedIn.

"The number of unsold new homes is on the rise and is as high as it's been, save for the lead-up to the financial crisis. It's hard to see homebuilding holding up," Zandi added.

Builders have been aggressively ramping up sales incentives and price cuts. In July, 38% of builders reported cutting prices, according to the National Association of Home Builders, which is the highest since the group began tracking that figure in 2022.

Read more: Pessimistic home builders are offering 'outrageous' incentives to lure buyers

They are expected to keep throwing discounts at buyers to boost sales in the months ahead.

In its third-quarter earnings report, D.R. Horton, one of the biggest builders in America, said it expects sales incentives to "remain elevated and increase further during the fourth quarter," but added that "the extent to which will depend on the strength of demand during the remainder of summer, changes in mortgage interest rates and other market conditions."

Read more: Home-buying incentives to increase in coming month, D.R. Horton says

But whether that strategy will continue to work is unclear. More builders are cutting prices after buyers lose interest in sales incentives such as mortgage-rate buydowns and closing-cost assistance.

"Feedback from would-be homebuyers indicates a variety of concerns ranging from affordability and the inability to sell an existing home to a slowing economy and the fear of potentially losing their job," Ryan Marshall, president and CEO of PulteGroup, said on the company's second-quarter earnings call.

"Consumer confidence is uncertain at best and confidence is something that's difficult to solve with a lower price or higher incentive," he added.

-Aarthi Swaminathan

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July 22, 2025 15:01 ET (19:01 GMT)

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