There's a tail wind in sight for the struggling homebuilders, traders say
Homebuilders are struggling.

The SPDR S&P Homebuilders ETF (XHB) has seen an outsized decline relative to the S&P 500 year to date as investor worries about a possible economic slowdown tied to the global spread of the coronavirus multiply, with the group falling nearly 24.5% versus the S&P's more than 20.5% loss.

Homebuilders Toll Brothers , Lennar and NVR were downgraded by Bank of America Securities analysts on Thursday, who said that while they were "still bullish" on U.S. housing, they "would be remiss to assume no impact ... from COVID-19." The firm upgraded KB Home for what it called "overdone" pressure on the stock.

With homebuilding possibly on pause as U.S. markets brace for what could be a broad-based decline in economic activity, some traders are worried that the subsector's fight for gains could fizzle even further.

"Of particular concern is a company like Toll Brothers that recently brought down revenue guidance and margins," Nancy Tengler, chief investment officer at Laffer Tengler Investments, said Wednesday on CNBC's "Trading Nation." "On the luxury end, that's not exactly what you want to see."

Admitting that her firm "sort of missed the big move up" in the homebuilders that occurred over the course of 2019, Tengler said that she's been playing the group via the home retailers instead.

"We've decided that low interest rates can manifest benefits in the big-box retailers in the home space," she said. "So, we own Home Depot as our largest holding. We own a little bit of Lowe's as well."

Craig Johnson, senior technical research analyst at Piper Sandler, said that in this low-rate environment — which led to a 79% surge in mortgage refinance applications on Wednesday — ultimately, "millennials will finally start to step up and buy homes."

"Low interest rates should be a nice tail wind for the homebuilders," he said in the same "Trading Nation" segment.

Johnson pointed to a stock chart of NVR, a primarily East Coast-based home construction company.

"Just now, that stock is starting to enter some technical challenges. It's breaking the uptrend support line that's been intact since ... 2018, and you can also see that we're starting to challenge some of the moving averages," Johnson said. "I think, at this point in time, you've got maybe 5% more downside to an important support level, and then I think you'll probably find your footing."

NVR shares fell about 13% in early Thursday trading to roughly $2,964, well past the 5% downside Johnson had called for Wednesday.

Tengler agreed that homebuilders could catch a tail wind from lower rates, but maintained that she would try and capitalize on the move "in individual names."

"I wouldn't be looking at the ETF at this point because I think what you own is going to matter tremendously," Tengler said. "The home retailers have also been a safe haven. ... So, we're going to continue also to be adding to those holdings as we get the opportunity."

Disclosure: Laffer Tengler Investments owns shares of Home Depot and Lowe's.

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