This Homebuilders Market Is as Sturdy as a House of Cards
Notable insider selling in housing-related stocks, high valuations and sagging demand all spell trouble ahead.
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The homebuilders and other housing-related names are among the most overvalued stocks in the market right now. Many of these stocks are selling right near 52-week highs and trade at extreme valuations using metrics like price to sales or price to book. I have also seen notable insider selling in some of the names I track in these sectors. (According to VerityData, insider selling across the Wilshire 5000 hit its highest level in two decades in the third quarter.)
I don’t understand the enthusiasm in this sector.
Existing home sales are tracking at their lowest levels since 1995, and the October new home sales reading was abysmal. With interest and mortgage rates likely staying higher and longer, it is hard to see how the housing sector booms in 2025. Inventory levels are climbing across many regions of the country (condo inventory in Miami Dade has now hit 10.6 months of demand for example) and homebuilders are having to offer more incentives like mortgage rate buy downs to move inventory.
I just look at some of the building supply stocks and shake my head. Take UFP Industries, Inc. UFPI, which manufactures wood trusses, products used for outdoor decks, and a variety of other lumber products used in the building and construction trades. The stock trades near 20-times forward earnings and near 52-week highs. This is despite missing both the top- and bottom-line consensus with its third-quarter numbers and management noting tepid demand across all three of its core business segments. The stock also sells at its highest price to sales ratio in at least 15 years. There was some notable insider selling at significantly lower stock prices earlier this spring and a director sold nearly $2 million worth of shares a week ago.
Eagle Materials EXP is another name in the genre, trading around 20-times forward earnings, a historical high price to sales ratio, and seeing major insider selling in November.
Then we have The Sherwin-Williams Company SHW. I love the company’s products, but I cannot see how an investor is justified paying nearly 35-times forward earnings for a paint manufacturer ... unless I am missing an AI angle somewhere.... The stock still has some fans among the analyst firm community, but insiders have disposed of more than $9 million worth of shares so far this month. The only other time I can find the stock selling at this price-to-sales ratio was near the end of 2021, just before the big selloff in 2022 across the market.
We will end with luxury homebuilder Toll Brothers TOL, which is trading at approximately 2.25-times book value. The stock typically trades around 1.5 book value and when the housing cycle turns troughs below book value. Insiders sold more than $15 million worth of stock from mid-September to mid-October. This is another equity right near 52-week highs.
So, while the market has bid up housing-related stocks, both valuation metrics and insider selling say the buying looks like it is got quite long in the tooth. Especially given the current state of the housing market.
At the time of publication, Jensen had no position in any security mentioned.
