“Home Construction ETF Cracks and Home Builder Struggles: Further Downside Ahead?”

Home construction ETFs have had a roller coaster ride in recent months, and this was especially true in the last few days. On Monday, the SPDR S&P Homebuilders ETF, ticker symbol XHB, completed a breakdown after bouncing off of its 50-day moving average support level. XHB has been in a downtrend since February, but this breakdown sets it up for further downside in the coming weeks.

The breakdown from XHB could be indicative of an underlying shift in sentiment towards the home construction industry. Investor sentiment towards the home construction has cooled in the wake of the coronavirus pandemic inducing an economic slump. This is likely due to the fact that as the economy slows, so does the demand for new houses.

Adding to the bearish news, one of the top homebuilders in the US, Lennar Corporation, has released disappointing second quarter earnings. Lennar reported a 16% drop in new orders compared to the same quarter in 2019. On the flip side, its results were not as bad as expected, beating Wall Street estimates. Earnings per share came in at 1.7 cents on revenue of $4.3 billion, compared to estimates of negative 0.17 cents and $4.14 billion, respectively.

The combination of these two events has some investors concerned that the home construction industry could be in for a rough patch ahead. XHB’s breakdown is reinforcing this worry, and this could lead to further downside for the ETF in the near term. Moreover, if Lennar’s results are an indicator of the broader US home building industry, then this could bode ill for the home construction sector in the future.