Housing stocks are having their worst year since 2008, and some see even more distress

Housing stocks are getting crushed.

Two major homebuilder stock-tracking ETFs, the ITB and the XHB, are on track to post their worst years since 2008 — and some strategists see further downside.

Lennar and KB Home fell more than 2 percent Wednesday after Credit Suisse downgrades, along with Home Depot and Lowe's. The firm was particularly bearish on the group given weak housing starts data and rising interest rates.

Erin Gibbs, portfolio manager at S&P Investment Advisory Services, said the group's low valuation may appear cheap to investors, but she's raising a warning about homebuilders' next move.

"They're trading at seven times forward earnings, which sounds super cheap and a great entry point, but they're just on a steady decline. We haven't seen any signs of stabilization," Gibbs said Wednesday on CNBC's "Trading Nation."

"When you look at the fundamentals, the profit growth for next year has been cut by one-third just in the last six months. That's a big drop," she said, noting headwinds like the rising cost of materials and weakening home sales.

From a technical perspective, the stocks could see a bounce, but perhaps just in the short-term, said Miller Tabak equity strategist Matt Maley. Rising interest rates caused Maley to go negative on the group in February.

He noted Wednesday on "Trading Nation" that the ITB, which is down 31 percent from its 2018 high, is "getting very, very oversold on a short-term basis. If you look at the weekly [relative strength index], it's the most oversold it's been since 2011, and it's testing its 200-week moving average. That line provided very good support the last couple of years, so I think we're getting set up for a sharp, short-term bounce."

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

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.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect