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Housing Stocks in Turmoil

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Housing Stocks in Turmoil

October 19, 2018
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Photo: Unsplash/Chris Li

The ITB and XHB, two home builder stock-trading exchange-traded funds (ETFs), are on pace to have their worst years in a decade. And experts say builders' trouble may not end there. 

Both Lennar and KB Home stocks fell two percent after being downgraded by multinational financial services firm Credit Suisse, precipitated by recent softening housing starts and rising interest rates. Home Depot and Lowe's were also downgraded by the firm. Portfolio manager at S&P Investment Advisory Services Erin Gibbs explains to CNBC, "They're trading at seven times forward earnings, which sounds super cheap and a great entry point, but they're just on a steady decline. We haven't seen any signs of stabilization," adding, "When you look at the fundamentals, the profit growth for next year has been cut by one-third just in the last six months. That's a big drop."

From a technical perspective, the stocks could see a bounce, but perhaps just in the short-term, said Miller Tabak equity strategist Matt Maley. Rising interest rates caused Maley to go negative on the group in February. He noted that the ITB, which is down 31 percent from its 2018 high, is "getting very, very oversold on a short-term basis. If you look at the weekly [relative strength index], it's the most oversold it's been since 2011, and it's testing its 200-week moving average. That line provided very good support the last couple of years, so I think we're getting set up for a sharp, short-term bounce."

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