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:


The End of “Easy Lifting”

Greg Guenthner

So far during this seven-month rally, we’re experienced three minor corrections that have resulted in strong upside moves. Now we have our fourth correction.

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

The US Debt Crisis that Will Never Happen

Chris Mayer

One of the most heated political battles raging across the western world is debt versus austerity. In the U.S. this debate reached it's apex in 2011 when the U.S. credit rating was downgraded by Standard and Poor's. In today's essay, however, Chris Mayer throws the debate out the window, explaining why he thinks a U.S. debt crisis will never happen...


3 Tips to Finding Small Companies With Huge Potential

Matthew Milner

Believe it or not, more capital for a company doesn't necessarily mean better returns for investors. In fact, in a recent study that dug through data from more than 200 acquisitions going back to 2006, they found a "sweet spot" for the most likely acquisition targets. And it's lower than you think. Matthew Milner explains...


Disruptive Innovation Will Change How You View Obamacare

Greg Beato

The Affordable Care Act dumped 2,000 pages of regulations into the health care sector, stifling any innovation that could have brought about real cost savings. But even with these obstacles, there are still people looking for ways to do things better and at a lower cost. These new technologies could be the key to fixing health care in America...


Why Old-School Tech Stocks Are Beating Social Media

Greg Guenthner

While many of the newer social media stocks struggle for gains this year, old-school tech stocks have become some of the best trades on the market. With the rare exception (Facebook is doing well—shares are up 26% year-to-date) the social stocks are in the gutter. They got off to a fast start in January and Februray, but ran out of steam in the spring. Aside from a few feeble attempts, few have posted anything close to a noteworthy comeback. Twitter, LinkedIn, and Groupon are all down double-digits year-to-date. Groupon—the worst performer on this short list—is down 47%. On the other had, the biggest of the big tech stocks on the market are helping traders pile up even larger gains right now. Greg Guenthner explains…


Video
Creditism and the Threat of a New Depression

Richard Duncan

In the 1960s, total credit in the U.S. broke the one trillion dollar mark...and since then, it has expanded over 50 times. But now, as Richard Duncan explains, the explosion of credit that's made America prosperous, threatens to take the entire economy down. And that could mean the return of another depression...