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Homebuilder ETFs Strengthen as Sentiment Hits 7-Year High


The housing market, along with the home construction exchange traded funds, are back in full swing, with homebuilder sentiment at a seven year high.

The SPDR S&P Homebuilders (XHB) was 1.7% higher Monday and iShares U.S. Home Construction ETF (ITB) gained 1.9%. XHB has increased 16.0% year-to-date and ITB is up 12.9%.

The National Association of Home Builders/Wells Fargo Housing Market index jumped to 52 in June from 44 last month, the largest one month rise since 2002 and 23 points higher year-over-year, reports Leah Schnurr for Reuters. Readings higher than 50 translate to favorable conditions, whereas levels below 50 remain poor.

“Another good sign that the recovery continues,” Jed Kolko, chief economist at Trulia, an online real estate marketplace, said in the article.

The housing market is recovering as prices rise, inventory shrinks and sales improve. Additionally, many homeowners financed home purchases with cheap mortgage rates, with borrowing rates kept artificially lower through the Fed’s bond-buying plan.

“The pent-up demand is there,” Sam Bullard, senior economist at Wells Fargo Securities, said in the article.

Daren Blomquist, vice president at RealtyTrac, though, warns that builders could face headwinds if the recovery entices banks to dump holdings of foreclosed homes onto the market.

Builders would face “more competition, particularly in markets where existing home prices are still well below the average price of building a new home,” Blomquist said.

Housing market observers will be looking for housing starts data after a 16.5% drop in April and a 5.4% rise in March. Additionally, the existing home sales data will come out Thursday. The More importantly, the markets will be watching out for the Federal Open Market Committee (FOMC) announcement, which will reveal its plans for short-term interest rates in the U.S. and any decision on the current $85 billion a month bond-purchasing plan.

SPDR S&P Homebuilders

For more information on the housing sector, 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.