US housing stocks, which have been a bright spot in this year’s market, were among the hardest hit in Monday’s selloff.
Amid concerns that the equity rout could hit the broader economy, the PHLX housing index underperformed the benchmark index. The housing index slid 5.4 percent and was on track for its biggest one-day percentage loss since April 2013, while the Standard & Poor’s 500 was down about 4 percent.
Among home builders, PulteGroup sank 5.7 percent to $19.74 and KB Home tumbled 5.6 percent to $14.19, suffering the biggest losses.
The declines came on the heels of last week’s strong data on the housing sector, including a report showing U.S. housing starts rose to a near eight-year high in July.
The sector has benefited from low interest rates, increased consumer confidence and more sustainable growth in the labor market.
“When you get this sharp of a (market) decline, people start to worry about downpayments and a reassessments of wealth,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
The outlook for the U.S. economy still remains the biggest factor for the housing sector, strategists said.
“Is this environment going to in some way hurt the underlying (U.S.) economy? At this point the answer is no, but that’s what we’re watching for. If it does, obviously housing is very sensitive to that,” said Jonathan Golub, chief market strategist at RBC Capital Markets in New York.
Even with Monday’s price drop, the housing index was up 5.6 percent for the year so far, while the S&P 500 was down 7.9 percent.
“The one thing that we’re still taking a lot of comfort from is U.S. economic data has been quite good, especially related to housing,” said Thomas Lee, managing partner at Fundstrat Global Advisors in New York. “Having exposure to U.S. housing has been a good strategy this year.”
Despite the run up in prices, valuations in the sector are below the S&P 500’s level. The price-to-earnings ratio for the three home builders in the S&P 500, Lennar, D.R. Horton and PulteGroup, is at 14.8 compared with 16.0 for the entire S&P 500, Thomson Reuters data showed.
Among home improvement companies, Home Depot was down 2 percent at $113.88 on Monday while Lowes Cos was down 3.5 percent at $68.64.