Homebuilder stocks just got crushed, and some market watchers say there’s far more pain to come.
The XHB, the popular homebuilders-tracking ETF, just posted its longest losing streak ever, falling for 13 consecutive sessions amid a breakout in U.S. Treasury yields that injected new risk into the rate-sensitive group. The XHB has tumbled 9 percent in just one month, entering into a bear market.
Interest rates and mortgage rates are keeping potential buyers on the side, said Erin Gibbs, portfolio manager at S&P Investment Advisory Services. Those elements, along with other fundamental drivers, give her reason to believe investors should stay away.
“On the other side, homebuilders are facing massive increases in cost, they’re really having problems with finding skilled construction workers; they’re also having higher material costs as commodity prices go up. So you’ve got higher costs in building, higher prices from a consumer perspective, and that’s just really making the earnings growth tank,” Gibbs said Friday on CNBC’s “Trading Nation.”
Earnings growth for homebuilders in the coming months is troubling to Gibbs, who said that “until we start seeing somewhat of a slowdown in this decline in earnings growth, some stability,” she would advise investors to avoid the group.
They look similarly grim from a technical perspective, said Bill Baruch, president of Blue Line Futures.
“Very ugly chart, peaked in January, death cross in April — the selling really though picked up in September as Treasury yields rose. They roared higher, and rising yields are not good for homebuilders, home purchases, and from here I do think the 10-year [Treasury yield] finds a ceiling at 3.25 [percent],” Baruch said on “Trading Nation.”
His forecast for the benchmark yield and his technical analysis of the XHB suggests the group can find support around the $34.25 level, where he may advise stepping in to buy.
The XHB closed nearly 1 percent lower on Friday, at $37.19, underperforming the broader market.