Homebuilders get a contrarian buy case as bond yields bite
Roth Capital’s Michael Darda says weak sentiment and lower valuations have made homebuilders his favored trade, despite pressure from higher rates.
By Frankie Delgado · News Reporter
2 min read
Homebuilder stocks have had a rough 2026, and that is exactly why Roth Capital Partners strategist Michael Darda says the group now has his attention.
Darda, chief economist and strategist at the Newport Beach, Calif.-based equity research firm, laid out the case in a client report published Tuesday, according to MarketWatch. His call centers on a beaten-down corner of the market that has been squeezed by rising bond yields, weak housing sentiment and affordability pressure on buyers.
The U.S. 10-year Treasury yield has climbed to about 4.64%, MarketWatch reported, up from roughly 4% levels seen in 2025. Higher yields tend to push mortgage rates and borrowing costs higher, making home purchases harder for buyers and weighing on the stocks of companies that build houses.
That pressure has already shown up in the sector’s share prices. The iShares U.S. Home Construction ETF is down 1% this year, while the SPDR S&P Homebuilders ETF has fallen 3%, according to MarketWatch.
Darda sees value in a bruised sector
Darda told clients that information technology has the strongest fundamental appeal, MarketWatch reported. His preferred trade, though, is in homebuilders, a sector where investor mood has stayed weak through 2026.
The argument is valuation. MarketWatch reported that the homebuilder group’s price-to-book ratio has fallen to 1.7 times. Darda wrote that, in recent years, buying builders near 1.7 times book value and selling near 2.7 times book value has worked well for investors.
That does not mean Darda is calling for a quick snapback. He warned clients that the trade will take time and said affordability will need a long stretch of income growth before it improves, according to MarketWatch.
Still, Darda said he likes the setup because he believes bond yields have limited room to rise from here and because the chart looks favorable, MarketWatch reported.
Housing data remains soft
The backdrop is still difficult. The National Association of Home Builders confidence index dropped to 34 in July on a 0-to-100 scale, its lowest reading of the year, according to MarketWatch. A separate report cited by MarketWatch showed pending home sales fell 5.4% in June.
Those numbers help explain why the sector has been left out of the broader market’s gains. With rates elevated and buyers stretched, homebuilder sentiment has taken a hit, and investors have been reluctant to chase the stocks.
Darda’s case is that much of that gloom is already reflected in prices. For investors willing to wait, he says the current valuation level has created a contrarian opening in a sector many have been avoiding.
This story draws on original reporting from MarketWatch.