This article is written exclusively for Investing.com
The Index has stalled in recent months, up just over 1% since September 1. However, recent months have been volatile, with the index rising and falling by as much as 10% in both directions. But more recently, the index has struggled since its peak on October 16.
The increased volatility may come as a surprise, given how hot the housing market has been. Mortgage rates have fallen as a result of the loose monetary policy pursued by the Federal Reserve. In addition, the industry has been helped by the pandemic as families have left large urban centers to move to the suburbs and buy houses. It means that the latest vaccine news could prove a headwind}} for the industry as investors begin to rotate out of groups benefiting from the pandemic.
US New Home Sales
Also contributing to this drop in the housing index is that month after month has started to slow and may be leveling off . The slowdown could force investors to look further down the road and see the slowing monthly trends as a sign that the rapid expansion is fading. Additionally, with a vaccine possibly just around the corner, it seems possible that families will also choose to stay in the cities or even move back to cities that were once considered safe.
Home Improvement Struggles Too
The struggling industry extends to home improvement names such as Home Depot (NYSE 🙂 and Loews (NYSE :). Home Depot's stock is down nearly 8% from its highest level on Aug. 26. Still, the stock is trading about 22.2 times higher than next year's earnings expectations, above the five-year average of about 19.6.
Home Depot's stock may even continue to struggle based on the tech chart. It shows that the stock has been in a trading range of $ 265 to $ 290 since July. Meanwhile, the relative strength index is on a lower trend since it peaked at the overbought level in mid-July. It would indicate that the stock is currently in a consolidation phase and may face a further decline. A break in support could cause that drop by cutting the stock to USD 245, down about 10% from USD 273.96 on Nov. 25.
Technical Problems
The Housing The index will need to keep rising to avoid a potentially bearish head-shoulder pattern. This is a reversal pattern and would indicate that the index has further downside risk. Should the index fall below the USD 360 support, it could result in a decline to USD 325, a decline of about 17%.
Like Home Depot, the Housing Index also has a bearish trend in the relative strength index, suggesting momentum is departing. The index is likely to continue to consolidate.
Analysts Still Bullish
Still, some analysts are optimistic about the group. On November 25, Trust Financial upgraded DR Horton (NYSE :), Pulte Group (NYSE 🙂 and Toll Brothers (NYSE: {{32520 | TOL) to buy ratings from hold ratings. The analysts also gave the shares significant price hikes. The analysts brought D.R. Horton's target price of $ 58 to $ 100. Meanwhile, Pulte was raised from $ 32 to $ 60, and Toll was raised from $ 45 to $ 60.
While the housing market is hot, investors seem nervous about the group's outlook based on the movements of the indices and some of the stocks in them. It could suggest that the market is seeing a potential slowdown from the recently booming industry.
