Seaport Research downgraded six homebuilders – Lennar (LEN) and PulteGroup (PHM) to Neutral from Buy, and KB Home (KBH), LGI Homes (LGIH), Meritage Homes (MTH) and Toll Brothers (TOL) to Sell from Neutral. The risk to return outlook for the builders is now to the downside, with the Federal Reserve-induced rally lifting book valuations despite fewer positive catalysts post the Q2 results and more decelerating macro trends, the analyst tells investors in a research note. The firm says that while starts already slowed from earlier highs, rising new and existing inventory is a margin risk, along with regional high margins from COVID boom states that are not yet factored into street estimates. Seaport sees 20% share downside to its Sell-rated stocks, saying their exposure to speculative units now carry greater than past margin uncertainty. The firm downgraded the sector on cyclical risks and full valuations.