Homebuilder ETFs Jump 4% on Rising House Values

ETF Trends

Homebuilder exchange traded funds rallied about 4% on Tuesday following a report that home prices are rising in nearly 90% of U.S. cities.

The iShares DJ US Home Construction (ITB) and SPDR S&P Homebuilders ETF (XHB) were up 4.1% and 3.4%, respectively, on Tuesday afternoon. The housing ETFs are again trying to break out to the highest levels since the subprime bust.

Home prices posted their strongest year-over-year increase in seven years in the fourth quarter, the National Association of Realtors said.

“Home sales are on a sustained uptrend, mortgage interest rates are hovering near record lows and unsold inventory is at the lowest level in 12 years,” said Lawrence Yun, NAR chief economist. “Home sales are being fueled by a pent-up demand and job creation, along with still favorable affordability conditions and rents rising at faster rates.”

In the fourth quarter of 2012, the median existing single-family home price climbed in 133 out of 152 metropolitan areas.

“Foreclosures and short sales have gone down, eliminating the sources of many cheap homes. So the more expensive types of transactions, like normal resales and new-home sales, went up. As a result, new-home construction, which was at rock bottom in 2011, also really came roaring back in 2012,” said Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business, in a Bloomberg News report.

The builder ETFs represented a top-performing sector last year as sentiment on the housing market improved. For example, ITB surged 79% in 2012.

“Investors are betting big on the housing recovery,” CNNMoney reports. “Hedge funds and private equity firms have been rushing in to buy up companies and assets in every part of the housing supply chain, including undeveloped land, homebuilders, foreclosed homes, and building parts manufacturers.”

iShares DJ US Home Construction

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The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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