U.S. Markets closed

Builder ETFs Up 2% as Home Prices See Fastest Growth Since 2006


Homebuilder ETFs rallied 2% Tuesday morning following a report that U.S. home prices rose nearly 11% in March from a year earlier, the fastest pace since April 2006.

SPDR S&P Homebuilders (XHB) and iShares U.S. Home Construction ETF (ITB) are up more than 20% year to date on signs the housing recovery is gaining momentum.

The S&P Case-Shiller house price index tracking 20 cities rose 1.4% in March from the previous month. Year-over-year, the index climbed 10.9%.

Looking ahead, pending home sales will be released on Thursday. Homebuilder ETFs are sensitive to this leading indicator.

The sector funds lost ground last week despite housing data that was in line with or slightly better than expectations.

Last week, the National Association of Realtors revealed that existing home sales rose 0.6% in April, or 9.7% above year-over-year levels, to 4.97 million, their highest since late 2009, reports Julie Schmit for USA Today. [Builder ETFs in Focus on New, Existing Home Sales]

The inventory for home sales also increased to a 5.2-month supply from a 4.7 supply in March – a 6-month supply is considered a healthy balance between demand and supply. Jed Kolko, chief economist for real estate website Trulia, believes that the inventory “has finally bottomed out.”

“The robust housing market recovery is occurring in spite of tight access to credit and limited inventory,” Lawrence Yun, NAR chief economist, said in the article. “If not for those constraints, existing-home sales easily would be well above the 5 million-unit pace.”

On Thursday, the Commerce Department stated that new home sale purchases increased to a higher-than-expected 2.3% in April to the second-highest level in five years as demand helps sustain residential construction, reports Lorraine Woellert for Bloomberg.

“We’re moving in the right direction,” Kevin Cummins, an economist at UBS Securities LLC, said in the Bloomberg article. “It’s pretty much consistent with an improvement we’ve seen in the labor market and income.”

Homebuilder stocks and ETFs have been a fairly reliable leading indicator over the years, topping out before housing bust and bouncing back before the housing recovery.

SPDR S&P Homebuilders

For more information on the housing market, visit our homebuilders category.

Max Chen contributed to this article.

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.