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A Contrarian Bet on Homebuilder ETFs

This article was originally published on ETFTrends.com.

Homebuilder stocks and sector-related ETFs are on a losing streak, touching their lowest level in over a year. However, the sell-off in home construction stocks may also be a buying

Year-to-date, the SPDR S&P Homebuilders ETF (XHB) dropped 13.4%, iShares U.S. Home Construction ETF (ITB) fell 19.2% and PowerShares Dynamic Building & Construction Portfolio (PKB) declined 14.7%, hitting lows not seen since September 2017.

However, Frances Donald, head of macroeconomic strategy at Manulife Asset Management, sees opportunity, arguing that the cost of building has tempered and the economic backdrop remains sound, Bloomberg reports.

“This to me is housing on sale and an interesting time to recognize this is a mid-cycle slowdown, not the signal of the end of housing in this cycle,” Donald told Bloomberg.

Strong Fundamentals

Strong fundamentals remain a strong backdrop. The monthly jobs report is expected to show U.S. unemployment at 3.8%, the lowest rate since the 1960s. Analysts also calculate wage growth to be 2.8% higher than last year. These factors should indicate greater confidence among potential home buyers, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse.

“I’d be buying the homebuilders,” Golub told Bloomberg.

Evercore ISI’s Stephen Kim, though, is waiting for a clearer sign in the trends. Nevertheless, a broader view of the market would show that consumers are hesitant and should “return to the ring before too long."

“Strength in housing may be one of the supports that pushes out the broader cycle a little bit longer than many may potentially be expecting,” she said. “I still see 2020 as a very difficult year for U.S. growth and therefore U.S. markets, but if we were to see the housing market re-accelerate and if we see a fiscal package, those are two potential game changers.”

For more information on the housing market, visit our homebuilders category.

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