The home-builder sector has been on fire in 2021. This industry group can be tracked by following the iShares U.S. Home Construction ETF (ITB). On March 18, 2020, the iShares U.S. Home Construction ETF (ITB) traded as low as $22.39 a share. Since that pivot low, the shares in ITB have soared to new all time highs, In fact, just yesterday the iShares U.S. Home Construction ETF (ITB) traded as high as $78.61 a share. That is a gain of 251% in a little over a year’s time. The rally in the home-builder stocks has been nothing short of incredible.
As you know, nothing lasts forever and all good things come to an end. Today, the leading home-builder stocks are selling off with the stock market decline. The iShares U.S. Home Construction ETF (ITB) is trading lower by 3.97% to $74.07 a share. While this fall might just be a one day decline or the start of a pullback it should be noted that there are problems on the horizon. Material costs to build a new home have been skyrocketing. Lumber, steel, copper and most other industrial materials have soared over the past year. This could be problematic as the profit margins begin to shrink for home-builders. It has now become much more expensive to build a new house and you can only pass on so much of the costs before the buyer gets priced out. This is beginning to happen now and we shall see if it begins to affect the industry.
The monthly chart of iShares U.S. Home Construction ETF (ITB) has now gone parabolic. Please understand, this pattern can hold up on a large time frame for a while, but it usually always ends the same way, with a large sell off and often a major topout. Natural pullbacks from these patterns are often 30 to 50 percent.
Should the iShares U.S. Home Construction ETF (ITB) peaks out it will hurt many of the leading housing related stocks. Hardware stores, paint suppliers and producers, cement companies, air condition manufacturers and countless other companies will be affected. This trickle down effect is absolutely enormous and stretches further than most people can imagine. It is also important to think about the lenders that are providing mortgages and financing. If they slow down it presents another major problem to the stock market and even the job market. Who would think that the housing sector was so important to the country, but it is. Everyone must understand that if the iShares U.S. Home Construction ETF (ITB) peaks out it will have serious repercussions to the economy.
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