The iShares U.S. Home Construction ETF started the new year strong, as mortgage rates continue to pull back. Shares of this homebuilder fund rose above a key support level, and hit an alternate buy point, lifting into the buy zone. The exchange traded fund is now featured in the Leaderboard's Leaders list.
Homebuilder stocks had a tough year in 2022, with mortgage rates soaring to rates not seen in 21 years and home prices hitting all-time highs.
The national average for a 30-year fixed rate mortgage rose to over 7.2% on Nov. 11, according to bankrate.com, more than double the prior year. It has pulled back since that time, dropping below 6.5%.
The firm now expects the 30-year fixed rate mortgage to drop to 5.25% by year's end on recession fears, giving homebuilders a much-needed boost.
Homebuilder Fund Buyers Hoping For Bottom
The January NAHB housing market index rose to a better-than-expected 35, the first increase in a year. However, the index has a long way to go to rise above the 50 level that indicates expansion. Still, it's a step in the right direction, and some analysts think the group bottomed out in December.
Meanwhile, December existing home sales fell to a seasonally-adjusted annualized 4.02 million units, better than 3.97 million consensus, but still a steep decline. The drop tallied the 11th monthly decline in a row, and the tally is 34% lower year over year.
ETF Offers New Buying Opportunity
The homebuilder fund gapped up in heavy volume Nov. 10, breaking out of a cup-with-handle base and hitting the 61.21 buy point. It rose above its 200-day moving average, and found support at the 21-day exponential moving average.
Shares trended higher into mid-December, creating an alternative 65.10 buy point, which it reached on Jan. 11. They are now in the 5% buy zone extending to 68.35. ITB bounced off the 21-day line Friday and is holding above the 10-day moving average.
The fund is trading about 9% off the 52-week high, up over 9% year to date, surpassing the S&P 500's nearly 5% gain. The 85 Relative Strength Rating inched up from 80 four week ago, a sign of improved price performance.
Homebuilder Fund Components Building Bases
Analysts have rediscovered the homebuilder fund and its components, upgrading and raising price targets on PulteGroup, Lennar and D.R. Horton.
DHI stock is the largest fund holding and set to report fiscal Q1 2023 earnings Tuesday before the opening bell. The stock gapped up on mixed earnings last quarter, but got a boost from better-than-expected October CPI data.
Shares are near a 52-week high and in the buy zone of a cup-with-handle base, after hitting the 92.55 buy point. But investors should stand aside ahead of earnings, as stocks can be volatile around these market-moving events
Lennar is the second largest holding and has a similar looking chart, also in the buy zone.
Pulte Group hit a new high on the relative strength line, as indicated by the blue dot on the weekly MarketSmith chart.
Other components include home improvement retailer Lowe's and paint retailer Sherwin-Williams.
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