Greg Guenthner

The much-heralded housing recovery is over.

No, you won’t see a bunch of new foreclosures in your neighborhood. And I doubt the value of your home will plummet. But the big, first phase of the housing market’s under-the-radar rise is finally cooked.

That means no more easy gains from homebuilding stocks. These names were great buys in 2011 and 2012. But right now, they just aren’t performing.

The simple fact is that expectations have run wild. The rebound in the real estate market isn’t a secret anymore. People all over the country can see the pickup in sales and construction in their respective towns. They’ve bet big on the homebuilding stocks. Now, it’s a crowded trade.

“While they have made great strides in the past year, home-builder stocks have become volatile recently as investors deal with mixed economic housing data, rising mortgage rates, and, in the cases of a few overheated markets such as San Francisco, worries that the market is setting up for another painful collapse,” reports MarketWatch.

Homebuilders

While I think concerns of another collapse are overblown at this juncture, it’s not a stretch to say that homebuilder names could keep falling for some time. In fact, the broad market is absolutely trouncing the housing sector stocks right now. The iShares Dow Jones U.S. Home Construction ETF has dropped 10% over the past three months. It’s up less than 6% on the year, compared to a 20% gain in the S&P 500.

Again, I don’t think we’re headed toward another blow-off top in the real estate market. Remember, homebuilders have been sitting on their hands for years. The number of completed new homes for sale remains at the lowest level ever recorded in 40 years of National Association of Home Builders data. You’ll have a chance to find value in homebuilder names somewhere down the line.

But right now, investors are looking elsewhere for gains. And unless you’re extremely patient and willing to sit through another leg lower, you should ditch these stocks until they begin to show signs of life once again…

Regards,

Greg Guenthner
for The Rude Awakening

You May Also Like:


Plotting the Pain

Greg Guenthner

The broad market has suffered since mid-May. If blood is your thing, you can find some added carnage in emerging markets. They’re down 7% over the same period.

Greg Guenthner

Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

Recent Articles

Laissez Faire
One Simple Trick to Living a Happy, Stress-Free Life

Chris Campbell

If you're employed in America, chances are you're working too hard... On average, most Americans work much harder than their foreign counterparts, and that's lead to some startling, and potentially harmful side effects. Today Chris Campbell offers a few ways to combat these negative effects, and help you live a more stress-free lifestyle. Read on...


3 Terrible Trades You Need to Know About Right Now

Greg Guenthner

Generally speaking, the Dow has been fairly boring as of late. A slight uptick here, a minor dip there... Nothing interesting, and certainly no sign of a major pullback. But, as Greg Guenthner explains, that's only half the story. To get a clearer picture, you need to look at the volatility in the small cap market. Read on...


The One Word Every IPO Investor Needs to Know

Jonas Elmerraji

When a big company IPOs, investors can hardly contain their excitement. In a flash of exuberance, they throw money at a company they've already decided is worth something... even if the market hasn't made up its mind yet. Today, Jonas Elmerraji explains how one simple word can change the fate of every IPO investor. Read on...


5 Min. Forecast
How to Spend $5.5 Million on a War You Already Won

Dave Gonigam

Baltimore was abuzz this weekend with parades, festivities, tall ships and air shows... And it only cost $5.5 million of taxpayer money! Yes, Saturday marked the bicentennial of a critical moment in the War of 1812 - the battle of Fort McHenry. And if you know of a better way to celebrate a war, Dave Gonigam is all ears...


The First Step to Self-Publishing Your Book

Chris Campbell

Want to self-publish a book? You can't afford to miss out on this series. Chris Campbell promises to deliver a step-by-step guide to self-publishing that leaves nothing out. Today, you'll learn how the most successful self-published book got to where it is today - and how you can use the same strategy to make your own book a success. Read on...