Tom Scollon

When we talk about stocks that may be affected by the housing downturn it is complex for many reasons; It is a truism – but some will be more affected than others.

There are few stocks that are purely Australian housing related. And stocks that will experience a direct hit are spread over many ASX sectors – such as Materials, Realtors and of course the likes of banks and other financial services companies will feel the effects of a sustained downturn.
Some stocks for example may be part of the Materials sector but are more focussed on non-dwelling construction rather than housing.

Some stocks will be hit by the buying and selling of houses, whilst others will be affected if there is a correlation between downturn in buying as opposed to a downturn in housing construction.
Housing construction has been a major driver of the domestic economy for many decades. The Asian buying is a relatively short-term phenomenon.

Certainly, a downturn in buying or selling will flow through to housing construction as both are affected by the same factors – e.g., tightening of credit, rising interest rates, consumer confidence etc.,

There are many would be buyers who have been sitting on the side lines waiting for this pullback.
But now that it has come many will not be able to obtain a loan or big enough loan to buy their dream.

One thing I do know from riding out many property pullbacks over my years is that any hiatus is followed by a burst of activity and a new sustained surge in construction as there is a constant shortage of stock. Australia is not building enough stock for future demand. It is a classic boom bust pattern.

So, the scene is complex in Australia when it comes to looking for investment opportunities in building/housing related stocks. And this is where technical analysis comes into its own. You do not need to understand my long preamble.

The stocks that I have shown below are material suppliers to housing construction – whether that be new or renovating. And certainly, there is a tight correlation between the latter and the buying/selling of houses. Here we go:

Adelaide Brighton (ABC:ASX) - Weekly Line Chart

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Boral (BLD:ASX) - Weekly Line Chart

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CSR (CSR:ASX) - Weekly Line Chart

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James Hardie Industries (JHX:ASX) - Weekly Line Chart

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The sample stocks show conforming patterns. They are all on a slide.
Where they land is any one’s guess.
The above charts are weekly, so they will take a while to play out.

It is not worth taking a punt on such stocks – if you are a long-term player.
If you are a trader, then there are some fantastic opportunities ahead.

Enjoy the ride

Tom Scollon