Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Home Builders Will Surge After This Correction

Published 04/23/2015, 03:26 PM
Updated 05/14/2017, 06:45 AM

The home-builder stocks have been coming under some selling pressure since the start of April. Many talking heads in the financial media are now calling the sector run as being over. Most traders know that every industry group will experience corrections. That seems to be what is happening with the home-builder stocks at this time. Below I list three reasons why the sector can still trade higher after this current correction is over.

  1. Home-rental prices have increased dramatically over the past several years in the United States. Many people are now thinking that it might be cheaper to own a home instead of renting one. Obviously, property taxes and home-owner insurance are two reasons why renters continue to stay in a rental property, but if rental prices continue to surge, the psychology of home ownership will start to change.
  2. Over the past five years many hedge funds and private-equity firms have bought a lot of single-family homes. Leading private equity firm, The Blackstone Group (NYSE:BX) was on a home-buying binge until last year. Those home purchases by the Blackstone and others by institutions have taken a lot of supply off of the market. Many people that are now in the market to buy a home are starting to pay the offering price for a house. This will eventually force potential home buyers to build a home as the supply in the marketplace continues to diminish.
  3. Another major factor that will keep the home-building sector intact in the near term is the fact that interest rates are at historic lows. Currently, the rate on a 30-year fixed mortgage is around 3.80 percent. The only problem with the low interest rates is that the banks still are not lending money like they did in the past. As the banks start to ease their lending standards, expect demand for home ownership to surge.

Recently, many of the major home-builder stocks such as Lennar Corporation (NYSE:LEN), PulteGroup (NYSE:PHM) and DR Horton (NYSE:DHI) have all declined sharply after reporting earnings. All of the declines in these stocks should eventually lead to another buying opportunity. Traders that want to follow the entire sector can trade and follow the iShares US Home Construction (NYSE:ITB). At this point, the ITB will have major chart support around the $24 level, which should be a major buying opportunity.

iShares US Home Construction ETF

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.