** Seaport Research upgrades DR Horton DHI.N, Lennar LEN.N and KB Home KBH.N to "buy" from "neutral" on valuation, operating metrics

** Says fall in homebuilders' shares since brokerage's September 2024 sector downgrade is consistent with usual tendency of sector to underperform in early cycle

** However, brokerage has positive call for homebuilding sector assuming higher potential for upside when market improves, compared to other sectors with underperforming tendencies in later cycle

** Brokerage also upgrades Pultegroup PHM.N and Meritage Homes MTH.N to "neutral" from "sell" as brokerage's sector bias supersedes fundamental headwinds such as high new supply, falling starts, margin pressure

** YTD, the PHLX Housing index .HGX fell 3.5%, compared with a 4.5% rise in 2024

(Reporting by Aatreyee Dasgupta)

((Aatreyee.Dasgupta@thomsonreuters.com))