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Homebuilder ETFs Fortified by Confidence Index


Homebuilder exchange traded funds are pulling out of the August slump as home construction firms are at their most optimistic since November 2005.

The SPDR S&P Homebuilders ETF (XHB) is up 1% Tuesday and iShares U.S. Home Construction ETF (ITB) gained 0.5%. Year-to-date, XBH is 14.7% higher and ITB is up 5.3%.

Homebuilder confidence in the market for newly built, single family homes remained unchanged in September at 58, following four consecutive months of improvement, according to the National Association of Home Builders.

Any reading above 50 means builders view the outlook as good rather than poor. The index averaged 54 in the five years leading to the financial crisis in 2007, Bloomberg reports.

However, home buyers are still weighing current market conditions against new purchases.

“Following a solid run up in builder confidence over the past year, we are seeing a pause in the momentum as consumers wait to see where interest rates settle and as the headwinds of tight credit, shrinking supplies of lots for development and increasing labor costs continue,” NAHB Chief Economist David Crowe said in the article.

Most buyers are looking at rising mortgage rates, but Hovnanian Enterprises Inc believes it is unlikely to stifle the housing recovery.

The hesitancy due to higher borrowing costs “will be a temporary bump in the road to housing recovery,” Chief Executive Officer Ara Hovnanian said in the article.

“Home buyers are adjusting to the fact that, while mortgage rates are still quite favorable on a historic basis, the record lows are probably a thing of the past,” NAHB Chairman Rick Judson said.

SPDR S&P Homebuilders ETF

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

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own 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.