New home sales are surging. That's according to a survey conducted by John Burns Real Estate Consulting that revealed sales of newly built homes jumped 55% year over year in June. It represents the largest annual gain since the housing crash at the height of the Great Recession more than a decade ago.
Industry experts credit the boom to consumers' preference for high-tech homes and demand for suburban housing as more people work remotely and homeschool their children during the coronavirus pandemic. "The anecdotal evidence is overwhelming. Sales in the distant commuter areas are the most robust," said JBRC founder John Burns, per CNBC.
Let's take a closer look at two homebuilding stocks that have made significant inroads in offering technologically advanced homes and an exchange-traded fund (ETF) that provides more broad exposure to the industry. We'll also discuss important chart levels to watch using technical analysis.
Lennar Corporation (LEN)
With a market capitalization of over $20 billion, Lennar Corporation (LEN) operates as a homebuilder primarily under the Lennar brand in the United States. The Miami-based company also provides mortgage financing and related services to homebuyers. Lennar remains a leader in home technology. Its "Wi-Fi CERTIFIED Smart Home Design" enables seamless voice control, shopping, and home automation through Amazon.com, Inc.'s (AMZN) Alexa. The homebuilder's stock has returned 25.8% so far this year, gaining 71% in the past three months alone as of July 17, 2020. Investors also receive a 0.73% dividend yield.
After paring most of their pandemic-induced decline, Lennar shares have remained stuck in a six-week consolidation period. However, the uptrend resumed this week, with the stock clearing crucial overhead resistance at $66 and now sitting just 2% shy of its multi-year high. In another win for the bulls, the 50-day simple moving average (SMA) crossed above the 200-day SMA at the start of the month to generate a golden cross buy signal. Traders who want to play the bullish momentum should consider using the 20-day SMA as a trailing stop. For instance, remain in the position until price closes beneath the indicator (green line).
D.R. Horton, Inc. (DHI)
D.R. Horton, Inc. (DHI) is one of the nation's largest homebuilders, operating in 90 markets across 29 states. The Arlington, Texas-based homebuilder offers smart home technology through its "Home Is Connected" design. It features one-wire connectivity, integrated geofencing technology, hands-free communication, a multi-platform wireless network, and greater energy efficiencies. Trading at $62.54, with a market cap of $22.74 billion and issuing a 1.12% dividend yield, the stock has jumped 19% year to date (YTD), outperforming the residential construction industry average over the same period by 11% as of July 17, 2020.
The D.R. Horton share price soared to a new all-time high Thursday, comfortably breaking above a period of consolidation in the process. The move corresponds with a buy signal generated by the moving average convergence divergence (MACD) indicator crossing above its trigger line. Those who enter here could use the measured move technique to book profits. To do this, calculate the distance of the consolidation area in dollars and add that figure to the breakout point. For example, add $9 to the breakout point at $60, which equals a $69 profit target. Protect capital with an initial stop placed underneath the July 14 low at $56.68.
SPDR S&P Homebuilders ETF (XHB)
Created in 2006, the SPDR S&P Homebuilders ETF (XHB) seeks to track the performance of the S&P Homebuilders Select Industry Index – an equal-weighted benchmark of U.S. companies involved in the homebuilding industry. As well as providing exposure to Lennar and D.R. Horton, the fund holds home improvement and building products companies, including Lowe's Companies, Inc. (LOW) and Masco Corporation (MAS). More than 2 million shares change hands on a razor-thin 0.03% spread most days, making the fund a segment favorite among active traders. A 0.35% expense ratio also keeps holding costs manageable for buy-and-hold investors. As of July 17, 2020, XHB has assets under management (AUM) of $808 million, yields 0.98%, and is up 2.76% YTD.
The ETF has formed a symmetrical triangle over the past six weeks, finding support from the 200-day SMA. More recently, the price broke above the pattern's upper trendline in Wednesday's session and continued its climb yesterday. Moreover, a pending golden cross signal indicates a new uptrend. Swing traders who enter at current levels should think about placing an initial stop-loss order under the triangle pattern and raising it under each subsequent higher swing low to let profits run.