Is it starting to feel like 2007 all over again? Some stock and exchange-traded fund (ETF) traders and homebuyers are getting increasingly worried about a possibly imminent housing market crash. But are they just a bunch of “Nervous Nellies” and “Chicken Littles” panicking about nothing?
Well, don’t get too complacent. One key sentiment indicator is pointing to potential problems in the U.S. housing market. Consequently, this may be a good time to pull back on any housing stocks and ETFs. A severe drawdown could be just around the corner.
Housing Market Crash Worries Linger
There has been a surge in online searches about whether a housing market crash is coming in 2023. However, that’s not the only indicator that investors ought to keep tabs on.
Reportedly, the National Association of Home Builders (NAHB)/Wells Fargo (NYSE:WFC) homebuilder sentiment index declined from 50 in August to 45 in September. This is a disappointing result, as economists’ median expectation was for a reading of 50 in September.
Not only that, but there has been a decline in traffic of prospective buyers in September. What’s causing this drop-off in sentiment and traffic, though?
The culprit isn’t hard to identify, as 30-year mortgage rates have been above 7% for a while now. The Federal Reserve spurred high mortgage rates by raising the federal funds rate multiple times in 2022 and 2023.
Robert Dietz, Chief Economist at the NAHB, explained the following:
“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower.”
What You Can Do Now
With all that said, the concerns about a potential housing market crash may be entirely valid. Therefore, investors can choose to delay or abandon any plans to purchase stocks/ETFs related to the U.S. housing market.
Examples of stocks to possibly avoid are Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW). And if you’re concerned about ETFs in this sector, you might choose to stay away from the iShares US Home Construction ETF (BATS:ITB) and the SPDR S&P Homebuilders ETF (NYSEARCA:XHB).
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.