Home Sales Data Hits Homebuilder ETFs

On Wednesday, the U.S. Commerce Department released its housing data which showed sales of single-family homes dropped 14.5 percent in March.

The seasonally adjusted rate of 384,000 sales is the lowest since the summer of 2013 which has some economists worried about weakening demand.

As a result of this negative reading, the iShares U.S. Home Construction ETF (NYSE:ITB) posted a single-day decline of over 1 percent.

This heavily-traded ETF is composed of 34 publicly traded home construction and building materials companies that are heavily influenced by economic data.

The index is market-cap weighted and top holdings include: Lennar Corp (NYSE:LEN), PulteGroup (NYSE:PHM), and D R Horton (NYSE:DHI).

See also: Worrying Housing Market Signs

Combined, these three builders make up over 28 percent of the total asset allocation of the fund.

ITB was on shaky footing prior to this news, after having declined 10 percent from its February high.

This sector is now re-testing its 200-day moving average and has made little headway in well over a year now, despite a host of erratic price swings.

Another widely followed ETF for housing enthusiasts is the SPDR S&P Homebuilders ETF (NYSE:XHB).

This fund takes a different tact with its underlying holdings by having increased exposure to building products, home furnishing, and appliance retail companies.

The index is more equal weighted and top holdings in XHB include: Trex Company (NYSE:TREX), Whirlpool Corporation (NYSE:WHR), and Legget & Platt Inc (NYSE:LEG).

The addition of retail names means that XHB is not a pure play on the new construction industry.

Nevertheless, this ETF was also hit hard on Wednesday with a drop of over one percent and has experienced a similar decline from its 2014 highs.

Right now this sector stands at a crossroads of support that must be upheld to allow for stabilization and a resurgence of upward momentum. That may include builders slowing price increases to enhance demand in light of higher borrowing costs from this time last year.

It should be noted that a single month decline in home sales is not indicative of a new trend and future data may point to stabilization in this arena.

However, this closely-watched metric will be a key indicator of future price action for homebuilder and real estate ETFs through the remainder of the year.