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Homebuilder ETFs Rise on Even More Strong Data

Eric Dutram

Although some investors might be concerned that soaring interest rates will have a dramatic negative impact on housing, that certainly has not been the case so far. Confidence is still high about the space, while home sales—both in terms of new and existing-- are coming in strong as well.

Beyond these bullish readings, investors also got some more great news on the price front too. Case-Shiller data for April came in well above expectations, suggesting that home prices are continuing to surge higher in 2013 (see Are Housing ETFs Back on Track?).

In fact, the year-over-year reading for the 20-city index showed price increases of 12.1%, easily beating the consensus of 10.9%. Month-over-month figures were also extremely favorable, as these showed a 2.5% increase in prices, once again well above the consensus which was looking for just a 1.1% increase, and actually the highest monthly increase in the benchmark’s history.

This increase helps to push the S&P/Case-Shiller 20 City index to a level above the 150 mark, a pretty remarkable reading considering that a year ago the benchmark was at just below 136. It also suggests that the recovery in the segment is accelerating, though we will have to see if future readings—in this new interest rate environment—can now live up to the hype.

Market Impact

Broad stock markets rallied on the data release, along with some strong consumer confidence figures. This reading surged to 81.4, crushing the consensus expectation which called for an increase to just 75.0.

With this backdrop, stocks in the consumer and homebuilding segments were among the biggest winners on the day. Funds in this segment set the pace for the market, easily crushing the S&P 500’s performance for the session (also read Homebuilder ETFs in Focus on More Solid Data).

In particular, investors saw solid days out of two incredibly popular ETFs, the iShares Dow Jones US Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB). Both of these funds have more than $2 billion in assets under management, and saw volume levels that were well above normal thanks to the key data releases.

ITB added about 1.7% at time of writing, compared to a 2.1% gain for XHB, although both beat the market by more than 90 basis points on the day. A host of other consumer-focused ETFs also were big winners, though their gains only just edged out the market for the day.


Interestingly, XHB is finally starting to pull away from its counterpart ITB. This is important, as both funds have exposure to the housing story, but they do so in very different ways (also read Best Construction ETF to Ride the Housing Upswing?).

ITB has more of a homebuilder focus, allocating roughly two-thirds of its assets to this space, and then another 10% (roughly) to building materials. Meanwhile, XHB has just over one-quarter of its portfolio in homebuilders, giving big chunks to building materials (26%), specialty retail (28%), and then household appliances.

Clearly, this difference can result in some divergent performance figures, especially over long time periods. In fact, ITB has outperformed XHB in the past two year time frame, posting a gain of 77% compared to XHB’s still-respectable move higher of 65%.

However, lately the market has finally begun to shift towards XHB and its ‘auxiliary’ exposure to the housing market. This consumer-heavy tilt has really paid off for XHB in the past few months as the fund is now outperforming its counterpart, and by a pretty wide margin too (read Is XHB a Better Housing ETF Play?).

Bottom Line

While there are some concerns over higher rates impacting the housing recovery, there is a ton of strong data supporting a continued move higher in the space. Not only have home sales been above expectations, but price increases have surged as well, suggesting that the trend is your friend in the housing market.

However, it is worth noting that there has been a mild shift in the housing space, away from those building homes and towards more consumer-oriented plays thanks to some strong data on that front too. Given this new trend, investors may want to consider XHB as a decent housing play at this time, though both XHB and ITB look to be solid picks so long as the favorable data keeps rolling in.

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