Barclays' June A.G.E.N.T. (Analyzing, Gauging, & Exploring Neighborhood Trends) Survey showed risks that indicate homebuilders will disappoint relative to rising expectations.
Barclays consequently cut ratings on homebuilder stocks Lennar ( LEN) , PulteGroup ( PHM) and TRI Pointe Group ( TPH) to "Equal-weight" from "Overweight," while downgrading Toll Brothers ( TOL) to "Underweight" from "Equal-weight."
"Our builder target prices are unchanged and show 7% average downside. We view building product/distribution stocks as having a more attractive risk/reward," Barclays noted.
The firm contends that expectations have run up ahead of themselves, and even though demand remains robust, decelerating indicators (buyer traffic) shows limited upside.
Barclays also sees margin headwinds in the form of land, labor and material costs.
The firm did offer some assurances in the space, including that the housing backdrop remains favorable with low inventory levels against encouraging household formations. But constraints such as land and labor pressures will prolong the sector's recovery.
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