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July 29, 2018 | Run from Homebuilders Like the House is on Fire!

Sean Brodrick

Sean is the natural resource analyst for Weiss Group. You can read his thoughts on gold, oil, cannabis, uranium and other natural resources at EdelsonInstitute.com

I have nothing against homebuilders per se. I wish them well. But the chart is painting a forbidding picture. If you own them, you might consider exiting or at least hedging those investments.

Just look at the SPDR S&P Homebuilders ETF (NYSE: XHB). The babbling heads on CNBC have pounded the table on this one recently, saying it’s cheap. Oh really?


Image credit: StockCharts.com

The XHB is well off highs it hit in January. Some might say it’s ready to bounce. But a closer look shows you that it is in fact breaking down.

I’ve circled in yellow where the XHB has fallen below a trendline. It’s fallen, and it can’t get back up!

This is driven by the terrible performance of major homebuilders. Lennar (NYSE: LEN) down 4.7% in the last week, PulteGroup (NYSE: PHM) down 7.3%, NVR Inc. (NYSE: NVR) down 10.3%, and Toll Brothers (NYSE: TOL) down 6.2% in the last week.

The list goes on … it’s a parade of pain. The only winner in the last week, D.R. Horton (NYSE: DHI), got smacked down on Friday.

Why Homebuilders are
Going into the Woodchipper

The problems facing homebuilders include …

• S. homebuilding fell to a nine-month low in June. That’s according to data from the Department of Commerce.

• Meanwhile, building permits declined for a third straight month.

• Also in June, housing starts fell by 12.3% to a seasonally adjusted annual rate of 1.173 million units. That’s the lowest level since September 2017.

What’s the problem?

Part of it is that mortgage rates are inching higher, as the Fed raises the benchmark interest rate. The Fed shows no sign of slowing its “steady but gradual” rate hikes, either.

Another problem is that house prices have been soaring far faster than wages for the past few years. That’s making homes less and less affordable for average Americans.

Finally, in April of last year, the Trump administration imposed anti-subsidy duties on imports of Canadian softwood lumber. That has now worked its way through the supply chain. And builders say this has significantly raised the cost of a new home.

Do you think those tariffs will go away anytime soon? No. Will the Fed stop raising rates? Not likely.

What’s that mean?

It means that homebuilder shares may be low … but they’re probably going to go even lower. The house is on fire, and it’s time to run.

I take no joy in writing this. I hope, one day, to write that it’s a good time to buy homebuilders again. But that day is not today.

If you are looking for good investments, instead look toward the mo-mo industries: Oilnat-gas, select techcybersecurity and uranium. That’s what my subscribers are doing, and it’s working out well.

All the best,

Sean

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July 29th, 2018

Posted In: The Edelson Institute

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