By Shaina Mishkin

Home builder stocks have had a volatile year. Explanations abound -- but history will likely remain the best guide for investors looking forward, one analyst says.

The home building industry has been bumpy as investors have digested news about housing costs, consumer and builder sentiment, political headwinds, and the future path of monetary policy, among others.

The stocks have been "up and down, but largely bouncing up post political headwinds and earnings," Seaport analyst Kenneth Zener wrote in a Dec. 1 report, noting that the stocks are up 22% from May following a 37% drop from their peak in September 2024.

"Now, this time is different, perhaps because of AI job destruction and/or narrow equity market performance, perhaps, with home affordability a real issue," he wrote. "Nonetheless, we expect builders to largely mirror trends reflecting past [portfolio managers'] investment biases to uncertainty."

The stocks' historic peak-to-trough returns "suggest further trade duration, for now," the analyst wrote. In housing cycles without a recession, builders typically rise 29% from their trough in the following 12 months, according to the note.

During recessions, the stocks often fall about the same, or worse, than the broader market, "but allowed investors to achieve asymmetric returns, when the unknown bottom, was realized," he wrote.

Historic trends in builders' book values and return on equity imply their valuations could have room to fall before the industry hits its trough, Zener noted. A rule of thumb for builders is to buy the stocks at one-times book value and sell at two-times, but the five top builders in November were trading at 1.6 times book value, or what the company would be worth if it was liquidated today.

Historic data shows that the group of the five top builders book value on average bottoms at 1.3 times book value, implying further declines are yet to come. Smaller builders could be closer to the trough: On average, these companies bottom at 0.8 times book value, with the group recently trading at 0.9 times, according to the report.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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December 02, 2025 14:30 ET (19:30 GMT)

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