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Should You Buy Housing ETFs Now?

The housing industry is steadily picking up pace as evident from the numbers released recently. Housing starts rose 0.2% in July to a seasonally adjusted annual rate of 1.21 million last month, the highest since October 2007. Starts on single-family houses surged 12.8% last month. This morning, the National Association of Realtors reported that its pending home sales index increased 7.4% year over year in July. Sales of new homes surged 26% last month, compared with July last year. Last week, the National Association of Home Builders reported that homebuilder sentiment rose to its highest level since November 2005. The housing market has been attracting many buyers and renters of late, thanks mainly to steady gains in the job market and low mortgage rates. In fact, even though builders have ramped up construction, the demand still exceeds supply, pushing up prices. Homeowners are also willing to spend more on upgrades and improvements as evident from Home Depot’s (NYSE: HD ) strong results last week. The company raised its guidance for the second time this year. Even with strong gains of late, the housing market is nowhere near bubble levels as housing starts of about 1.5 million are considered “normal” by economists. Further, despite low rates, mortgage originations have seen weak growth in 2015, mainly due to tight credit standards and low levels of refinancing. With improving economy and labor markets, banks could loosen their standards for homebuyers. Lastly, the Fed may keep rates unchanged this year in view of the recent market turmoil. All these factors are likely to support the housing market in the coming months. In the short video below, we have discussed three housing ETFs – the iShares Dow Jones US Home Construction ETF (NYSEARCA: ITB ), the SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) and Etracs ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ) – which are actually very different in terms of their exposure to homebuilding and related sub-industries. Original Post Share this article with a colleague

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

3 ETFs To Buy As Housing Picks Up

Though the U.S. housing market saw a rough first quarter, sales are picking up as the spring selling season gets into full swing. The season usually warms up in March and sees maximum business till the back-to-school season in September. The spring selling season generally brings in improving sales trends. Higher job numbers, a reassuring economy, moderating home price gains, affordable interest/mortgage rates, rising rentals, recent federal initiatives to increase mortgage availability and a limited supply of inventory point to an inevitable pickup in the housing market. Even though the U.S. economy faltered in the first quarter of the year, this can mostly be attributed to the strong dollar and a harsh winter. The economy is expected to improve later this year. Rising consumer confidence, a reassuring economy and improving employment trends should lead to better home sales as the year progresses. Last year saw slowing housing price gains on stabilizing demand. The trend is expected to continue in 2015 as well. Moreover, housing should remain an affordable option in 2015, as mortgage rates are still below historical levels. Even if mortgage rates rise in the latter half of the year – as is widely anticipated – housing will likely remain reasonable. Apartment rental rates have also continued to move up, making home buying more attractive than renting. To add to the positives, plans from the White House to cut premiums on mortgage insurance should increase mortgage availability and thereby encourage home buying among first-time homebuyers. With oil prices continuing their downward journey and the economy largely on the mend, the desire to own new homes should get a shot in the arm. ETFs to Tap the Sector Given the improving fundamentals, the homebuilding sector deserves a closer look. For investors willing to play the space in a less risky way, an ETF approach can be a good idea. This technique can help to spread out assets among a wide variety of companies and reduce company-specific risk at a very low cost. Below, we have highlighted three ETFs that are worth looking into. SPDR Homebuilders ETF (NYSEARCA: XHB ) XHB is one of the more popular homebuilding ETFs in the market today, with assets under management of around $1.58 billion and a trading volume of roughly 4.28 million shares a day. The fund has an expense ratio of 35 basis points. The fund holds 37 stocks in its basket, with 50% of the assets going to mid caps and 6% comprising large-cap stocks. Despite the smaller holding pattern, the fund does not appear to be concentrated in the top 10 holdings. The fund has just 33.9% in the top 10, with Aaron’s Inc. (NYSE: AAN ), A. O. Smith Corporation (NYSE: AOS ) and Tempur Sealy International Inc. (NYSE: TPX ) occupying the top 3 positions with asset allocation of 3.84%, 3.54% and 3.41%, respectively. The fund’s assets include 32.83% homebuilders, 29.27% building products and 15.59% home furnishing retail stocks. The fund carries a Zacks Rank #3 (Hold), with a high level of risk. iShares U.S. Home Construction ETF (NYSEARCA: ITB ) Another popular choice in the homebuilding sector is ITB, which tracks the Dow Jones U.S. Select Home Construction Index. It has $2.03 billion in assets, with a trading volume of roughly 4.1 million shares a day, while its expense ratio is just 45 basis points. The fund holds 37 stocks in its basket, of which only 11% are large cap securities. The fund has a concentrated approach in the top 10 holdings, with 57.7% of its asset base invested in them. Among individual holdings, the top stocks in the ETF include D. R. Horton, Inc. (NYSE: DHI ), Lennar (NYSE: LEN ) and Pulte (NYSE: PHM ), with asset allocation of 10.61%, 10.45% and 8.30%, respectively. Homebuilders accounts for around 65% of this fund. The fund carries a Zacks Rank #3 (Hold), with a high level of risk. PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) This ETF comprises around 30 housing companies, and has its assets invested across all classes of the market spectrum. Engineering and construction stocks comprise 21% of the fund, followed by building materials companies that account for 17%. A look at the style pattern reveals that the fund has a preference for growth stocks. The fund manages an asset base of $56.4 million, and has an expense ratio of 63 basis points. The fund has only 15% in large cap securities and 46.3% in the top 10 holdings. The fund carries a Zacks Rank #3 (Hold), with a high level of risk. To Sum Up While the housing market slowed down in the first quarter, homebuilders are increasingly optimistic of the spring selling season. However, increasing competitive pressure and rising land and construction cost amid moderating home price increases are the headwinds in the housing market. Original Post