One of the later data releases this morning was homebuilder sentiment from the NAHB.  The NAHB's Housing Market Index was expected to come in slightly weaker versus last month, falling to 45 versus 46 in December. Instead, it rose one point, which marks the highest reading since April.

At current levels, homebuilder sentiment is basically in the middle of the past three years range, but that also ranks only in the 31st percentile of all months in the index's 40 years of history.  This month's improvement in the headline number came on increases in both present sales and traffic. But countering that was future sales plummeting six points to a three-month low.
 

Below we show the spread between future and present sales indices.  In December, that spread surged to the highest level on record, meaning it was a historically optimistic outlook from homebuilders contrary to what was being reported for present sales.  The inverse moves this month marks a reversal in that spread, although it is still at one of the highest levels in over a decade.
 

Geographically, homebuilder sentiment was mixed in January with declines in the South and Midwest countered by an increase in the West and a big jump in the Northeast.  As shown below, sentiment is currently the highest in the Northeast. In fact, that index is now at the most elevated level since May 2022. That compares to other regions in which current readings are more middling versus recent years' readings.
 

Turning over to homebuilder stocks, the group proxied by the iShares Home Construction ETF (ITB) had opened lower and hit intraday lows right before the NAHB report was released, but the stronger than expected reading has sent shares higher as it is now up 0.23% on the day. Albeit ITB is up today, that is only putting a small dent in what has been a dramatic drop recently.

As shown below, the ETF was hit hard during the recent run up in rates over the past two months and at points was trading at historically oversold levels.  The first of homebuilder earnings earlier this week offered some respite as KB Homes (KBH) reported a top and bottom line beat after the closing bell Monday. The stock is up over 7% since reporting and the broader group using ITB is up a similar degree in that time. With that said, recent declines have done their damage. The 200-DMA has begun to roll over and the 50-DMA has already been falling sharply.  Currently, ITB's 50-DMA is only 36 bps above that longer term 200-day moving average, putting the ETF on watch for its first death cross since March 2022.
 

The homebuilders are a rate sensitive area, meaning price action recently and in the near future is likely to be heavily impacted by where rates go.  With that said, earnings are also always a catalyst. Below we show a snapshot of our Earnings Explorer and the next S&P 1500 Homebuilder stocks scheduled to report. As shown, these names have generally seen positive price action on earnings and for three of the five, guidance has impressively been raised over 10% of the time historically with solid EPS and sales beat rates to boot.

(Click on image to enlarge)

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