Homebuilder ETFs Soar On Hot-Selling Homes
There is midsummer madness in the housing market thanks to soaring demand for homes. This is especially true as existing home sales jumped at the fastest pace in eight years in June while median home prices hit a record high. U.S. existing sales climbed 3.2% to a seasonally adjusted annual rate of 5.49 million homes and much higher than the market expectation of 5.4 million. This represents the highest reading since February 2007. Meanwhile, median home price surged 6.5% year over year in June, well above the July 2006 peak on limited supply. Robust numbers reflect a brisk summer selling season and were credited to an improving economy, accelerating job growth, rising wages and the prospect of a interest rates hike later in the year. This has led to a rally in the homebuilder space. In particular, Hovnanian Enterprises (NYSE: HOV ), D.R. Horton (NYSE: DHI ), PulteGroup (NYSE: PHM ), Beazer Homes (NYSE: BZH ), and Lennar Corporation (NYSE: LEN ) are up 3.6%, 2.8%, 2.4%, 2.3%, and 2.3%, respectively. Smooth trading has also been felt in the homebuilder ETFs space, with iShares U.S. Home Construction ETF (NYSEARCA: ITB ) and SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) gaining about 2% each on the day. From a year-to-date look, ITB and XHB are up 6.1% and 7.1%, respectively, and are easily outpacing the broad sector (NYSEARCA: XLB ) and broad market (NYSEARCA: SPY ) funds. XLB lost nearly 3% while SPY gained 3.8% in the same time frame. Both the homebuilder ETFs have a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. The upside in the homebuilder stocks was also supported by last week’s solid data including housing starts and building permits. New home construction jumped to the second-highest level since November 2007 in June while building permits surged to a near eight-year high, suggesting that housing market recovery is on high gear. Further, homebuilder confidence, as indicated by the National Association of Home Builders/Wells Fargo housing market index, remained steady at 60 in July. This marks the maximum confidence in a decade for two consecutive months. The outperformance in the homebuilding space is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 40%. Investors seeking to make large profits in a short span could take look at the leveraged play – ProShares Ultra Homebuilders & Supplies ETF (NYSEARCA: HBU ) – which provides double exposure to the index of ITB. However, the fund is relatively new in the space and has low trading activity, making it a riskier and high cost choice. Original Post