Homebuilders' Upcoming Financial Results Face Macro Pressures, UBS Says

03:57 PM EDT, 10/12/2026 (MT Newswires) -- US homebuilders' upcoming financial results are expected to remain "challenged," with outlook cuts likely due to a tough macro environment amid elevated mortgage rates and deteriorating consumer confidence, UBS Securities said Monday. Mortgage rates have soared by 88 basis points since the end of June, UBS said, as a surge in energy prices amid the US-Iran conflict has fanned inflation fears. Last week, the Mortgage Bankers Association said the average interest rate for 30-year fixed mortgages with conforming loan balances of $832,750 or less jumped to 7.49% in the week through Oct. 2 from 7.3% a week ago. That's the highest it's been in almost three years, according to the report. Separately, a University of Michigan survey showed that US consumer sentiment fell in October as inflation expectations reached their highest levels since May. "(Third-quarter) financial results for (homebuilders) are expected to remain challenged and full-year financial outlooks are likely to be revised lower, given the recent spike in mortgage rates and declines in consumer confidence," UBS analysts, including John Lovallo, said in a note to clients Monday. Despite a challenging macro backdrop, underlying housing demand appears to remain strong, the brokerage said, citing data from a survey conducted between Aug. 25 and Sept. 9. The survey showed that 37% of respondents plan to purchase a residential property within the next year, compared with 34% in the second quarter and a 31% historical average. Some 63% of the respondents are looking to pursue a repair and remodel project, compared with 61% in the second quarter and a 59% historical average, according to the note. "While mortgage rates increased through September (even post-survey-close), we view these results as evidence that housing activity could bounce back quickly with any potential easing in Iran tension, oil prices and mortgage rates, along with improvement in consumer confidence," the UBS analysts said. Lennar (LEN) and KB Home (KBH) shares continued to be resilient despite what the brokerage described as "choppy" quarterly results and a 20% downward revision to its 2027 earnings per share estimates, "indicating to us that investors sense industry fundamentals are approaching trough." Both companies reported results last month. PulteGroup (PHM), NVR (NVR), Meritage Homes (MTH), D.R. Horton (DHI), and Cavco Industries (CVCO) are expected to report their latest quarterly financial results later this month, according to UBS. Champion Homes (SKY) will report in November, while Toll Brothers (TOL) is expected to report in December, the brokerage said. UBS expects EPS of $3.14 for D.R. Horton, $1.25 for Meritage, and $4.99 for Toll Brothers, all exceeding the consensus estimates of $3.05, $1.20, and $4.90, respectively. The brokerage projects EPS at $102.41 for NVR, and $2.59 for PulteGroup, compared with consensus estimates for $104.68 and $2.65, respectively, according to the note. "Our channel checks have also remained reasonably constructive as recently as mid-September, with a top-15 builder citing an industry transition from correction to early stabilization, buyers beginning to adjust to higher mortgage rates, stronger conversions, more consistent sales/closing activity and positive (year-over-year) order growth (year to date)," the UBS analysts wrote. "We believe the setup for the homebuilder stocks remains favorable, particularly as investors begin to focus on the 2027 spring selling season." Price: 41.75, Change: -1.38, Percent Change: -3.20