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Why Homebuilder Stocks May Rebound From a Bear Market Drop By Shoshanna Delventhal | November 20, 2018 — 6:00 AM EST
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Homebuilding and related stocks such as Lennar Corp. (LEN), PulteGroup Inc. (PHM), Toll Brothers Inc. (TOL) and D.R. Horton Inc. (DHI), which have plunged 23% as a group into a bear market, are now poised to rebound, according to one market watcher.

Home Builders: Ready to Rebound?
Stock Percentage Off 52-Week High
Lennar 42.5%
Pulte 28.4%
DRHorton 34.4%
Toll 41%
XHB ETF 27.8%
'Technical Support Is in Place,' Says Bull

In an interview with CNBC's "Trading Nation" on Thursday, Todd Gordon, technical analyst and founder of TradingAnalysis.com, argued that the recent sell-off in homebuilding stocks is an overreaction on fears of rising rates.

The SPDR S&P Homebuilders ETF (XHB) saw its losses accelerate once the U.S. 10-year Treasury yield broke above 2.8%, said Gordon. He noted that from that point on, the plunge in the homebuilder sector has been stark, yet the technical charts signal a rebound in the near future.

"Technical support is in place, and we can continue higher," said Gordon, who notes that as long as the ETF is above $31 to $32, things are looking up for the XHB, which is trading just above $34 on Monday afternoon. He does not foresee a rapid rate increase, and his forecast does not take into account an unforeseen spike in rates.

Gordon's bullish view is in stark contrast to many investors who are fleeing the sector.
What's Next for Homebuilding Investors?

Gina Sanchez, CEO of Chantico Global, chimed in on the CNBC segment, arguing that despite forecasts for continued growth in the U.S. economy, higher interest rates "really affect first-time homebuyers," who are currently the focus of the homebuilding market.

"So they're really sensitive to very small moves in interest rates, because it does move their monthly mortgage, and that does matter to first-time homebuyers. So I think that's a big problem," she stated.

On the bright side, however, Sanchez noted that lower costs could boost housing stocks. In particular, falling lumber prices should help boost margins, while limited land supply relative to demand could contribute to more attractive prices for the group.

Moody's Analytics Chief Economist Mark Zandi was out with a bearish note, indicating that the 30-year fixed rate mortgage rate hit a crucial 5% level earlier this year, weighing heavy on single-family housing demand, as reported by CNBC.

"Affordability is now an issue for many potential home owners. Home sales have gone sideways since the beginning of the year and house price growth is now slowing in many markets so it's already doing damage. Some of the weakening is due to the tax effect in markets where the deduction was critical," he added.

While homebuilder and related stocks may prove volatile, they likely will not crash in magnitude comparable to the Financial Crisis, according to Nobel Prize winner Robert Shiller. The Yale economist told CNBC's Power Lunch in October that we may be in a bubble, "but it's not the same...It's more placid" this time.

Read more: Why Homebuilder Stocks May Rebound From a Bear Market Drop | Investopedia https://www.investopedia.com/news/why-homebuilder-stocks-may-rebound-bear-market-drop/#ixzz5YjopvPKY
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