New home sales have been on a gentle trajectory upward over the past two years, but that critical data point has come nowhere close to reaching its pre-crisis highs seen in the go-go days of the U.S. residential real estate market.
One would have to go back to 2006 to see the recent peak in new home sales. The most recent new home sales data is not even on par with what was seen on the way down throughout much of 2010. “Since August 2006, the annualized rate of new-home sales has dropped about 60 percent—and stayed there,” reports Mark Glassman for Bloomberg.
However, the SPDR S&P Homebuilders ETF (XHB) has come all the way back to a price range seen in August 2006. Thing is, as Glassman noted, XHB is a dreadful predictor of new home sales even though equities are considered forward-looking indicators. [Homebuilder ETFs Fortified by Consumer Confidence]
XHB closed at $29.88 on Thursday. The ETF closed at $29.99 on August 7, 2006. The $1.8 billion ETF has more than doubled in the past two years, but not all of those gains can be attributed to the fund’s weight to homebuilders. The rival iShares U.S. Home Construction ETF (ITB) allocates 64.4% of its weight to companies deemed as “home construction firms.” [Play the Real Estate Recovery With ETFs]
By comparison, XHB’s combined weight to home furnishings, home retailers, hardware stores and appliance makers is about 46%. That means XHB is a quasi-consumer discretionary ETF and discretionary has been a great sector to dance with over the past few years. Over the past 24 months, the Consumer Discretionary Select Sector SPDR (XLY) is up 67%.
Looking back, XHB served as a better harbinger of the negativity to come than did the Financial Select Sector SPDR (XLF). XHB’s decline began in earnest in 2006, but XLF did not really start to tumble until the third quarter of 2007.
XHB still has a way to go to reclaim its lost glory. The ETF has not closed above $33 in over six years and trading just under $30 means XHB resides more than 50% below its all-time high set in the first quarter of 2006.
SPDR S&P Homebuilders ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of XHB.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.