Recent data from the U.S. Department of Commerce show housing starts in May fell 6.5 percent from April on a seasonally adjusted basis.
Since the start of the year, housing start numbers have been working their way back up to 1.07 million in April after a drop-off in the winter. In May, housing starts were just down to just above 1 million.
Future data may get worse, too; building permits were also down 6.4 percent, to 991,000, in May.
"This is probably a little bit of reason for concern," said Gina Sanchez, founder of Chantico Global, who sees some challenges ahead in the housing market. "Interest rates have been extremely benign all year and very, very low and that obviously supports housing. We are seeing sort of a crawl back up out of the hole for interest rates."
Sanchez is concerned with the drop off mortgage applications this past May compared with last year. According to the Mortgage Bankers Association, purchase mortgage applications were 14.7 percent lower in May 2014 than they were in May 2013.
"That's important because May is cyclically a very strong month for the housing markets," Sanchez said. "Seeing those purchase applications falling in such normally cyclically strong months tells you that some of that organic demand is starting to fade. That I think is an important piece of information that you can't ignore. I do actually think that housing is going to moderate for some time."
In terms of the technical set up, the ETF that tracks home builder stocks, the iShares U.S. Home Construction ETF (ITB), has bounced from its support level at $23.25 per share, according to Steven Pytlar, chief equity strategist at Prime Executions.
"Despite kind of the negative economic data points that have come out," said Pytlar, "the ITB has been relatively stable and in fact it surprised us technically."
For much of the year, Pytlar said, nothing has been able to break below that level. And, last month the ITB broke above a down trend that began in February.
"If we do get a positive data point, maybe it surprises the market," Pytlar said. "There are still buyers in this market. We would look to accumulate versus that $23 ¼ level. It makes for a very clear stop and very clear support."
"In theory, there are buyers still sitting there," said Pytlar about the $23.25 level. "We've seen that on recent tests coincident with bad news. When they're looking to buy it at that level on the day of bad news, that usually tells us that investors are trying to look through it, and they are looking to accumulate on weakness."
To see the full discussion on the housing market and the ITB, with Sanchez on the fundamentals and Pytlar on the technicals, watch the above video.