For a second month in a row, homebuilder sentiment slumped with the NAHB's Housing Market Index falling from its recent high of 56 in June down to 45 in August. That is the lowest reading since April and the first back-to-back declines since last December.

As shown below, double-digit drops in two-month spans are far from unprecedented, but this most recent decline is on the large side of history ranking in the bottom 2% of all two-month moves since the start of the survey in 1985.  Looking more recently, there have been even more pronounced declines like in 2020 at the onset of COVID and last year.

The declines in homebuilder sentiment were observed across the country with the indices of each of the four regions of the country falling. The charts are largely similar with each having come off of recent highs well below the prior peaks but still well off the lows put in place late last year.

(Click on image to enlarge)

As homebuilder sentiment has peaked, so too have homebuilder stocks. This group had been a big winner recently, but throughout the summer the iShares Home Construction ETF (ITB) has made a series of lower highs and lower lows. In the process, it has fallen back below its 50-DMA and continues to trade below that level hovering right above its summer lows.

Again, relative to the broader market ITB was a consistent winner throughout much of 2022 and the first half of 2023. But with weaker performance over the past few months, that outperformance relative to the broader market (indicated by the upward trending relative strength line below) has been put to the test.

More By This Author: