Rise And Fall Of Homebuilders: What Drove ITB's 30% Drop

ITB, the biggest homebuilder ETF, is 30% below its October 2024 peak. Builders' earnings fell faster than its price, so its P/E is above its median.

The biggest homebuilder ETF set its all-time high on 18 October 2024. Four days later, PulteGroup Inc. (PHM) Chief Executive Ryan Marshall said the Fed’s turn to lower rates “provides a powerful tool in helping to address the affordability challenge faced by today’s homebuyers.” He added that his company was “well positioned to deliver a record year of earnings.”

That fund is the iShares U.S. Home Construction ETF (BATS:ITB). Two years later, it is 30% below that high.

Bust, Boom, Bust

ITB opened for trading in May 2006, close to the top of the last housing boom. By March 2009, it had lost seven-eighths of its value. It did not climb back to its launch price until January 2018.

A long climb followed. From the 2009 low to October 2024, ITB rose about 22-fold, with dividends included. Still, the starting point shaped much of the result. Twenty years after its launch, ITB has roughly doubled, while the S&P 500 has grown more than eightfold.

Bust, boom, bust: $10,000 invested in ITB at its launch in May 2006, monthly, dividends included. From launch to March 2009 it lost 87%; from March 2009 to the October 2024 peak it gained 2,071%; since that peak it has lost 30%, to 20 October 2026.

Anatomy Of A Fall

ITB’s top came a month after the Federal Reserve’s first rate cut of the cycle, on 18 September 2024. Mortgage rates moved the other way. The 30-year rate in the weekly survey of Freddie Mac (FMCC) hit its low a week after the cut. It then rose with Treasury yields after a strong jobs report and the election. By mid-January 2025, it was back above 7%.

Builders’ results soon showed the cost. In December, Lennar Corp. (LEN) reported a gross margin below its own guidance. On the same day, the Fed signaled fewer rate cuts for 2025. In April, ITB hit its first low in the market-wide tariff selloff.

The fund recovered through the summer, but 2026 brought a second leg down. In late February, the mortgage rate dipped below 6%. Days later, the strikes on Iran pushed oil prices and inflation higher. In September, the Fed raised its rate. In October, the 30-year mortgage rate reached 7.40%, its highest since November 2023. ITB set a new low on 14 October.

Anatomy of a fall: ITB against its 18 October 2024 peak (left axis, 0 at the peak) and Freddie Mac's 30-year mortgage rate (right axis), July 2024 to October 2026. Markers: Sep 2024 mortgage rate at its 2024 low, 6.08%; Oct 2024 ITB peaks; Dec 2024 Fed signals fewer cuts and Lennar's margin disappoints; Apr 2025 tariff selloff and ITB's first low; Feb 2026 mortgage rate falls to 5.98%, then strikes on Iran; Sep 2026 Fed raises rates and the mortgage rate reaches 7.40%. ITB ends about 30% below its peak.

The Affordability Gap

The National Association of Realtors uses a simple affordability test: the loan payment should take no more than a quarter of income. By our calculation, buying the median existing home at today’s mortgage rate takes an income of about $110,000 under that test. The median household earned $87,460 last year, according to the Census Bureau.

That gap is now wider than at the top of the last boom. In 2006, the median home took about 11% more than the median income. Today, it takes about 26% more.

Relief may be slow to come. In its October forecast, Fannie Mae (FNMA) raised its outlook for the 30-year mortgage rate to 7.5% through 2027. Mortgage rates tend to follow the 10-year Treasury yield. On 9 October, Pimco Chief Investment Officer Dan Ivascyn told the Financial Times that this yield could reach 6% for the first time since 2000. “You can certainly get there,” he said.

The affordability gap: income needed to buy the median existing home (20% down, 30-year fixed, payment at most 25% of income) against median household income, 2006 to now. The income needed fell well below the median income from 2009 to 2021 and rose above it from 2022; now $110,129 needed against a median household income of $87,460. The gap: +11% in 2006, −39% in 2012, +26% now.

Builders Pay To Close The Gap

Builders are keeping homes selling by paying part of the bill. They cut prices, and they pay to lower buyers’ mortgage rates. At PulteGroup, incentives reached 10.4% of the sale price last quarter, up from 8.9% a year earlier. Lennar’s gross margin fell by almost two percentage points from a year before.

The pressure is industry-wide. In October, 65% of builders used sales incentives, according to the National Association of Home Builders. The group’s builder confidence index fell to its lowest level since 2012.

Profits Fell Faster Than The Price

Over the past year, ITB returned −15%. Over the same period, the earnings of the companies in the fund fell about 22%. As a result, the fund became more expensive even as its price fell.

ITB’s trailing price-to-earnings ratio is now 15.4x. A year ago, it was 14.1x. Its median since 2017 is 13.6x.

The last downturn ran the other way. From December 2021 to June 2022, ITB fell 41% while builders’ earnings were still rising. By September 2022, its P/E had dropped to 6.1x, and the fund rebounded in 2023. This time, profits are falling along with the price.

ITB’s forward P/E is 12.8x, which shows that analysts expect earnings to rise again over the next year. With mortgage rates above 7%, that recovery is the part of the price most at risk.

Down 30%, above its usual valuation: ITB's trailing P/E since May 2017 and its median of 13.6x: a low of 6.1x in September 2022 and 15.4x on 20 October 2026.

ITB holds mostly the builders themselves. Homebuilders make up 64% of the fund. The four largest, D.R. Horton Inc. (DHI), PulteGroup, NVR Inc. (NVR) and Lennar, make up 44% on their own. Home Depot Inc. (HD), Lowe’s Companies Inc. (LOW) and Sherwin-Williams Co. (SHW) add about 14%.

The SPDR S&P Homebuilders ETF (NYSE:XHB) is the other large homebuilder ETF. It weights its holdings close to equally, so builders are a smaller part of it, alongside makers of building products and retailers. XHB fell less from its 2024 peak, and it trades at a higher multiple.

ITB and XHB side by side on 20 October 2026. Homebuilders' share 64% and 41%; four largest holdings 44% and 15%; trailing P/E 15.4x and 18.4x; median P/E since 2017 13.6x and 15.6x; forward P/E 12.8x and 15.3x; return over the past year -15% and -10%; below the October 2024 peak -30% and -22%;

What Comes Next

Next week brings three tests. September’s new-home sales come out on 27 October. The Fed meets on 27 and 28 October. D.R. Horton, ITB’s largest holding, reports results on 29 October.

If builders’ margins hold, ITB’s forward multiple may prove fair. If incentives keep rising, the earnings behind that multiple may take longer to arrive.

Disclosure: Data as of 20 October 2026; mortgage rate as of 22 October 2026. This is not investment advice or a recommendation to buy or sell any security. We receive no compensation from the issuers of the funds mentioned. Our managers may or may not hold positions in the funds mentioned.

First published in the ETF Copilot newsletter.

Sources: PulteGroup third-quarter 2024 results; PulteGroup third-quarter 2026 results and presentation; Lennar fourth-quarter 2024 results; Lennar third-quarter 2026 results; Freddie Mac Primary Mortgage Market Survey; Federal Reserve statements of 18 September 2024 and 16 September 2026 and December 2024 projections; NAHB on 2025 tariffs; NAR existing-home sales, September 2026; NAR affordability method; Fannie Mae housing forecast, October 2026 (Florida Realtors report); Dan Ivascyn to the Financial Times, via Reuters, 9 October 2026; Census Bureau, Income in the United States: 2025; NAHB/Wells Fargo Housing Market Index; D.R. Horton results date.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.