Builder ETFs Fall Again Before Lennar Earnings, Home Sales

ETF Trends

Homebuilder ETFs should see action this week as investors get quarterly earnings from two sector bellwethers and a report on August new-home sales.

The iShares U.S. Home Construction ETF (ITB) and SPDR S&P Homebuilders ETF (XHB) were both down Monday for the third straight session after last Wednesday’s big Fed-fueled rally. [Homebuilder ETFs May Have More Upside After Fed Puts Off Taper]

Lennar (LEN) and KB Home (KBH) will announce quarterly financial results on Tuesday. In particular, investors will be looking for any signs the recent rise in mortgage rates has cut into demand.

“If there could be one quarter that might define this week, it will be Lennar’s on Tuesday,” said Jim Cramer at TheStreet.com. “There are two components to this quarter. First, is this possibly the last good quarter because the mortgage lock-ins are now over? Or, second, have rates stabilized or gone lower now, meaning that buyers are coming back into the market?”

Homebuilder ETFs have been weak performers in recent months as Treasury yields jumped.

“[I]nvestors are looking at new headwinds for the homebuilding sector that have led them to send share prices down sharply in recent months,” writes Dan Caplinger for The Motley Fool. “Yet the bigger question is whether Lennar earnings will see a hiccup in growth from higher mortgage rates, or if home-buyers will prove more resilient in their purchasing activity.”

KB Home and Lennar are expected to post solid earnings, but the stocks look pricey, The Wall Street Journal reports.

“Lower rates for longer clearly are positive for companies that sell people the most expensive purchase of their lives on credit. Even so, there are plenty of other positive factors for homebuilders, from rising prices to increasingly compelling demographics,” Spencer Jakab writes for the WSJ. “The problem is that these appear to have been priced in well before the prospect of less Fed bond buying and rising interest rates appeared. Despite headline after headline about rising home prices and even bidding wars, not a single major homebuilder has outperformed the broad market so far this year.”

Aside from homebuilder earnings, investors will also get several data points on the housing market this week. These include Case-Shiller home prices, new-home sales and pending home sales.

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Chart source: chessNwine

Full disclosure: Tom Lydon’s clients own XHB.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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