Homebuilders are hurting.
U.S. home construction in March endured its worst monthly decline since 1984 as housing starts fell by over 22% from the previous month, the Commerce Department said Thursday. Homebuilder confidence was also pummeled, with one key indicator seeing the biggest drop in its 35-year history.
Home construction stocks have reflected the weakness. The iShares U.S. Home Construction ETF (ITB) and SPDR S&P Homebuilders ETF (XHB) are down this week, the ITB falling over 4.5% and the XHB losing nearly 3.5%. Year to date, the ITB is down almost 28% while the XHB is down over 28%.
Some market watchers including Chantico Global CEO Gina Sanchez expect the pain to continue so long as measures to stem the spread of the coronavirus remain in place.
“I think the general feeling and consensus is that supply chains and just the ability to build inventory right now is really challenged,” Sanchez told CNBC’s “Trading Nation” on Thursday. “Until the mitigation efforts are kind of removed and we have the ability to be able to walk in and see homes, we’re probably going to see continued slowdown in this market.”
Todd Gordon, managing partner at Ascent Wealth Partners, said investors could still find some attractive stocks within the two main homebuilding ETFs, adding that he likes the ITB’s technical setup.
While the ITB’s holdings are roughly 70% construction and homebuilding stocks, “there is still a large component in home improvement services, specifically Home Depot,” Gordon said. “We have about 10% in Home Depot and Lowe’s and other services like that. So, we hold Home Depot in our portfolios at Ascent and I view this as a nice place to hang out.”
The long-term uptrend on Home Depot’s weekly chart, which showed the stock holding above its 200-week moving average around $180, was encouraging, Gordon said. Home Depot shares were up 4% on Friday, near $207.79.
The daily chart indicates Home Depot has some more room to run, Gordon said.
“The daily has the 200-day [moving average] above us at 220. We have this breakdown period about 210,” he said. “That’s going to be a lot of wood to chop, but I do think [with] home improvement projects — I’m doing some at home — people will come back. And I do think once this thing normalizes, I do think people will start to move into homebuilding, perhaps move out of the metro areas.”
Sanchez agreed that things should look up once the U.S. coronavirus outbreak is under control.
“There is the expectation that once these mitigation efforts are removed and you have more ability to be able to get back to a normally functioning market, there is demand out there and there is a shortage of supply. That should be beneficial,” she said. “And, also, anecdotal evidence would suggest that there is a tremendous amount of home improvement activity going on in lieu of other activities.”
The ITB climbed nearly 5% Friday.
Disclosure: Ascent Wealth Partners owns shares of Home Depot.