Anticipated rebuilding after the US hurricanes have helped push up bullish sentiment on US
homebuilders to very high levels, offering a tactical relative-value opportunity. The top-left
chart shows VP’s Sentiment Z-score on US homebuilders, which have hit 5-year highs. The
top-right chart shows that the ratio of the US Homebuilders ETF to the Consumer Staples
ETF has bounced up to resistance levels, offering an attractive entry point to short homebuilders against staples.
We are not outright negative on US house prices (our US house price LEI is going sideways),
but homebuilder equity prices are running ahead of where leading indicators of future
housing activity are at. The bottom-left chart shows that rising mortgage rates tend to lead
building permits growth lower, while the bottom-right chart shows that apartment market
tightness is falling, reducing upward pressure on rents. We like tactically shorting US
homebuilders as a relative value trade against US consumer staples.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception