MW The bullish breakout in these stocks suggests the housing market has turned a corner
By Tomi Kilgore and Philip van Doorn
A home-builder ETF has climbed above longer-term trendlines that could indicate the start of new uptrends
With U.S. housing starts perking up, investors may be looking at an early entry point for a broad recovery for home builders and their stocks.
The home-building sector has been stuck in a rut over the past couple of years, but recent technical developments, on both an absolute and relative basis, are pointing to the start of a new bullish period.
The fact that the chart signals are starting to sync with improving fundamental data helps support that view. Earlier Wednesday, government data showed that construction of new homes jumped a higher-than-expected 6.2% in December to the highest level seen in five months.
Home builders have been struggling with affordability issues, some of their own making, and an oversupply problem following a period of overbuilding just as mortgage rates started rising. In turn, builders struggled to find the right balance between increasing incentives to boost sales and protecting profitability.
Despite a bounce to start the year, the iShares U.S. Home Construction ETF ITB ended January around the same price seen two years ago. But since then, the ETF has rallied, enough to break through some key resistance levels to suggest momentum is now with the bulls.
(See below for a chart of home-builder stocks within the ETF, ranked by those with the cheapest share price relative to expected earnings.)
The reason investors as well as economists should take note of the ITB's breakout is that home builders are historically seen as "an early cycle leader," Oppenheimer technical analyst Ari Wald wrote in a note to clients this week. That means the home-builder sector tends to move first, and the broader stock market will eventually follow.
On the shorter-term daily charts, the ETF managed to fight off a bear push at the end of 2025. The 50-day moving average, a shorter-term trend tracker, fell to within 0.30 of crossing below the 200-day moving average, a widely followed longer-term trend dividing line, before turning back up.
If the 50-DMA had crossed below the 200-DMA, that "death cross" pattern would've warned of further losses, like it correctly did in January 2025.
Oppenheimer's Wald also pointed to the recent turn higher in the 200-DMA as a positive technical sign, as it shows how the recovery was strong enough and has lasted long enough to affect the longer-term trend.
And on the longer-term weekly charts, the breakouts are more apparent.
On just a price chart, the ITB rose above a 16-month-long downtrend line last week. Chart watchers contend that a trend will stay in force until there is a definite sign that it has ended. The clearest way to see when a trend is about to change directions is when a trendline breaks.
There's a similar breakout in a relative-strength weekly chart of the ITB and the S&P 500 index. These charts depict how one charted instrument performs against another, rather than look at price changes of the individual instrument.
That chart shows that the ITB change in trend isn't just about its price, but also how it performs relative to the broader stock market. Basically, after losing ground to the S&P 500 SPX for the past 16 months, the ITB appears set to start outperforming.
Oppenheimer's Wald wrote that, for now, "the weight of the market evidence remains constructive" for the home-builder sector, but he also noted that it remains "underappreciated" on Wall Street.
The lack of upside from the current stock prices of many of the ITB's components to their respective consensus analyst price targets, even for the stocks in which most analysts are bullish, suggests Wall Street has not yet caught on to the change in trend.
How home-builder valuations compare
With action in the U.S. housing market picking up, this is a good time for investors to look at the home-building sector. These stocks are cheaply priced relative to expected profits. And even if your local market has been weak, the long-term fundamental remains - there is a shortage of housing.
Read: Housing starts jump to highest level in five months, showing momentum going into the new year
One way to invest in home builders as a group is with an exchange-traded fund. The ITB holds 46 stocks of companies in industries tied to residential construction, including 18 home builders and companies in related businesses, such as home-improvement retailers Home Depot $(HD)$ and Lowe's $(LOW)$, and paint seller Sherwin-Williams $(SHW)$.
The table below shows that the group is cheaply priced, with seven of the 11 listed below having forward price-to-earnings ratios of less than 15. For reference, the weighted forward P/E for the S&P 500 SPX is 21.8, according to LSEG.
We narrowed the list to 11 by excluding Tri Pointe Homes (TPH), because it agreed last week to be acquired by Sumitomo Forestry, and we have also excluded any stocks covered by fewer than five analysts polled by LSEG, to have a good sample size for consensus estimates.
PulteGroup Inc. Forward P/E Share "buy" ratings Feb. 17 price Consensus price target Implied 12-month upside potential Toll Brothers Inc. 12.2 63% $163.83 $157.59 -4% Taylor Morrison Home Corp. 12.6 80% $68.09 $75.81 11% Meritage Homes Corp. 12.9 33% $80.15 $82.03 2% Pultegroup Inc. 13.6 50% $141.58 $142.37 1% KB Home. 14.0 19% $65.75 $61.35 -7% D.R. Horton Inc. 14.5 32% $166.29 $162.49 -2% Century Communities Inc. 14.9 60% $73.43 $82.00 12% Lennar Corp. 17.0 16% $121.44 $108.94 -10% LGI Homes Inc. 17.2 40% $58.15 $76.00 31% NVR Inc. 18.5 29% $7,421.00 $8,574.00 16% Champion Homes Inc. 26.8 67% $97.05 $94.28 -3% Source: FactSet
It may not be a surprise to see the home builders cheaply priced. Given how long the housing market has been under pressure, analysts may have been reluctant to raise earnings expectations to keep up with the share price gains.
There are two stocks on the list with majority "buy" ratings and double-digit-percentage upside potential to consensus stock price target: Taylor Morrison Home Corp. (TMHC) and Century Communities (CCS).
-Tomi Kilgore -Philip van Doorn
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February 18, 2026 16:02 ET (21:02 GMT)
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