Homebuilder Stocks: Sanchez, Gordon Tackle Rising Interest Rates, Technical Support

Housing stocks continue to show weakness, with the homebuilder-tracking exchange traded fund SPDR S&P Homebuilders XHB down around 25 percent since the start of 2018.

Economic data released Monday was cause for more concern, showing that sentiment among homebuilders fell eight points to 60 in November. This marks the worst readout since August 2016, although any figure north of 50 is still considered a positive, CNBC reported.

Will investors in the sector find relief? Two pros offered their take during a recent CNBC "Trading Nation" segment.

Sanchez: 'Kibosh On That Party'

The recent weakness in the homebuilder sector may have some investors confused given the country's strong wage growth, which is typically encouraging for homebuilders. But the wage growth comes during a cycle of interest rate hikes, Chantico Global's Gina Sanchez told CNBC.

Higher interest rates impact mortgage payments and could have outsized impacts on first-time home buyers, which are "the focus for most of the homebuilding market right now."

While higher interest rates are a "big problem" for first-time buyers, the homebuilding sector has some potential catalysts ahead, she said. They include a 50-percent drop in lumber prices, which could support margins, and a limited supply of land for new homes relative to demand. 

"This should be a great time for homebuilders, but interest rates are really really putting the kibosh on that party."

Gordon: Technical Support

The Homebuilders ETF peaked at $47.20 in early 2018 and recent losses in the stock coincide with the U.S. 10-year Treasury yield moving above 2.8 percent, Trading Analysis founder Todd Gordon told CNBC. But the ETF bounced higher after flirting with a key support level of around $31 to $32, which represents around a 79-percent giveback from when the ETF started moving higher in early 2016, he said. 

"Technical support is in place, and we can continue higher," Gordon said. "We're already pushing up at the $34 mark. Technically, that's good in contrast to some name-specific damage that we've seen."

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