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Why things may be looking good for home builders

New home sales in July were lower than expected but don't count the homebuilders out just yet.

According to the U.S. Commerce Department, new home sales in July were at a seasonallyadjusted rate of 412,000. That's 18,000 lower than expected, according to data compiled by FactSet, and it's also 10,000 lower than June's revised numbers.

But new home sales were up 12.3 percent in July compared with July 2013. So while home sales may be slowing down, they're still better than they were last year.

According to Gina Sanchez, founder of Chantico Global, the housing market has some things going for it.

"Although this data point was a disappointment, the general trend hasactually been for improving home sales," said Gina Sanchez, founder of Chantico Global.

Sanchez, a CNBC contributor, also sees lower interest rates ahead, helping to make housing affordable. But for homebuilders, there may be a worry looming. "We have seen supply and inventories continue to creep up," she said. "That's never really a great factor. But generally speaking, I would say that there is some support. You just have to watch what happened between supply and demand."

Mark Newton, chief technical analyst at Greywolf Execution Partners, believes the technicals are also positive for the homebuilders. He notes that the ETF tracking the sector (trading under the ticker symbol ITB) has been trading in a range roughly between $20 and $25 per share since May 2013 after trading in the single-digits as late as 2011. However, he sees recent moves as being optimistic.

"In the near-term, it's been sort of choppy," Newton said. "But just in the last couple of weeks, you saw a few different things. The homebuilders had climbed almost 17 percent from February into August. Since then, we've seen a pretty sharp rally over the last couple of weeks."

Newton is eyeing $24.85 as a key level in the ITB. "The homebuilders overall are still about 50 percent down from the peaks that were made back in 2005-'06," he said. "So it looks like a very good risk/reward heading into September, one of the seasonally more bearish months of the year.

Newton thinks a move above $24.85 would be particularly bullish given a low interest rate environment. "I do like owning ITB here and the builders," he said. "I look to buy any pullbacks."

To see the full discussion on the ITB, with Sanchez on the fundamentals and Newton on the technicals, watch the above video.

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