The iShares U.S. Home Construction ETF ($ITB) is up 27% YTD, compared to a 6% gain for the S&P 500.
What's going on? On Monday, the NAHB (National Association of Home Builders) reported that builder sentiment jumped 6 points to 78 in August, the highest level 35-years.
👉 Any reading above 50 indicates positive sentiment.
NAHB Chairman Chuck Fowke:
"The demand for new single-family homes continues to be strong, as low-interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs."
"The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low-interest rates."
Driving the trend is a shortage of existing homes, low interest rates, and people flocking to suburbs.
Read also: Freddie Mac's research paper on the causes of the housing shortage.
What's the chart telling us?
- In July, the price broke above the previous resistance level at $50.
- To maintain upside momentum, the $50 level should hold on a retest.
$ITB top ten holdings:
|Company||% Gain/Loss YTD|
|D.R. Horton ($DHI)||42.07%|
|Lowe's Companies ($LOW)||34.19%|
|Home Depot ($HD)||32.16%|
|Toll Brothers ($TOL)||10.35%|
Note: Their are some non-home builder companies in the top ten, like Sherwin-Williams (paint), Home Depot (retail), and Topbuild (installation).
D.R. Horton is the best-performing homebuilder YTD at +42.07%.
Here are a few slides from its Q3 2020 investor presentation.
Market share dominance:
Product offerings and price points:
Return on inventory (ROI):
Book value per share:
What they do with cash flow:
Chart: D.R. Horton ($DHI)
Supply and demand levels:
- The trend is higher.
- For upside momentum to continue, price should hold on a retest of the trendline (red arrow).