Hot housing stocks are cooling off, and there could be more trouble ahead

Suddenly, housing stocks have gone from hot to not.

The iShares U.S. Home Construction exchange-traded fund, the ITB, has fallen more than 1 percent in the last week after advancing more than 50 percent year to date. The ETF is still the best-performing U.S. industry group ETF this year, according to an analysis from Bespoke Investment Group.

A relatively strong fundamental backdrop has set the homebuilders up for their hot streak, said Gina Sanchez, CEO of Chantico Global. She cited rising wage growth, consumer sentiment ticking higher and mortgage rates remaining historically low. Still, she spots emerging risks on the horizon.

"We have seen tightening inventories. Regionally, these are different stories. So what's happening in California is going to be different from what's happening in Nevada. However, that is going to continue to be a problem," Gina Sanchez, CEO of Chantico Global, said Tuesday on CNBC's "Trading Nation."

The pending tax bill also provides an air of uncertainty regarding mortgage rates on a state-by-state basis, she added.

Technically speaking, the charts of the housing stocks look strong, said Rich Ross, head of technical analysis at Evercore ISI.

Looking at a chart of the ITB, Ross noted that a slight pullback after a strong run is to be expected. Zooming out and looking longer-term, he noted that the ITB has recently emerged from a four-year sideways trading range despite its recent lagging.

"What we know about technical analysis is when we emerge from these patterns, whether it's a multiyear range or a multiyear base, the moves coming out of that pattern tend to be larger in both duration and magnitude than people anticipate. That's what's going on here with the homebuilders," he said.

The ITB was modestly lower in Wednesday trading.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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