3 Homebuilders ETFs for the New Housing Stimulus Legislation

No, this is not a hoax. I am calling this the beginning of an opportunity to become a player in real estate ETFs at this time for speculative funds. Although economies here and elsewhere have a ways to go before realizing that the light at the end of the tunnel is not an oncoming train, yesterday, beginning with Bernanke in front of the Senate Finance Committee and concluding with Obama in front of everyone, some sense of purpose emanating from inside the Beltway has arrived. I like it. It would have been nice to have a sighting of the Treasury Secretary, but he is still mulling over his next appearance on the Hill hoping not to reprise a woeful premiere performance.

Although I am in Rick Santelli's camp regarding bailouts of the liar loans and speculators, as an investor - and active real estate participant - reality must be acknowledged that hundreds of billions will prevent further erosion of the real estate sector, sans commercial which will remain a mess. And short of direct investment as a landlord, ETFs are the way to game the surge.

Here are three picks that focus on domestic home builders with a financing arm:

1. ITB - iShares Dow Jones Home Construction ETF $7.99/sh, .48/fee, +8.27% 2/24
2. PKB - PowerShares' Dynamic Building/Construction ETF $8.69/sh, .63%/fee, +4.45% 2/24
3. XHB - SPDR S&P Homebuilders ETF $9.18/sh, .35%/fee, +7.27% 2/24

On Monday, a bulletin was e-mailed to those on the National Association of Realtors' large producer roster and stated the following:

REALTORS ARE THE VICTORS IN HOUSING STIMULUS PACKAGE

For nearly four months, NAR has been working to deliver a comprehensive plan to stabilize the housing market.

Last week, NAR saw countless hours of hard work pay off when the federal government implemented NAR's recommendations to stimulate housing with the signing of the American Recovery and Reinvestment Act of 2009.

This bold and unprecedented move to help housing did not happen by chance. Just a few months ago, the auto industry had Congress' ear. Yet, thanks to countless meetings, letters, phone calls and public pressure REALTORS placed on lawmakers in Washington, D.C., housing emerged as the top priority in the new Administration and in Congress. While some of the items in the Act are controversial and are being debated, our top priorities were addressed.

Thanks to our hard work, America's homebuyers and homeowners will soon have:

1. Lower interest rates for home mortgages.
2. A greater ability to get financing through FHA, Fannie Mae and Freddie Mac in high-cost areas.
3. A true tax credit incentive to buy a home NOW, and
4. Foreclosure mitigation and short-sale standards.

As a direct result of NARs advocacy, we anticipate REALTORS will see an increase in house sales this summer. NAR also continues to make significant progress on our efforts to unclog the pipeline for foreclosures and to address administrative problems with short sales.

I am not predicting a straight upward move in the housing sector. However, the unbridled glee of the NAR coupled with even more monies coming from TARP 2 towards the housing industry in the form of mortgage subsidies and functioning financial money centers bodes well for the investor willing to extrapolate today's bargain basement home builder into potentially double or triple digit gains over the intermediate term.

Pressed by some readers to name my favorite form of real estate for now and the future, I still reply: Buy well-located property at a good price and become a long term landlord. However, these ETFs will work for the more passive investor within the real estate sector.

Comments

[REITBull:]

I think that the supply vs. demand for housing is too much of a headwind at this point for XHB or the other homebuilder ETF's. There will be continued negative absorption throughout the year with ARM's resetting. I also believe we will see some more builder BK's before things stabilize. There will be a time to jump back into these, but it is too early for me.

In regards, to Commercial RE, I believe people will begin spending money at the malls before they start buying houses again.

Feb 25 08:55 AM

[learnmoney:]

I live in the United Kingdom but come to the USA every year to look around. Believe me that what is going on will take years to resolve. Let me give you one example.................. up the houses for sale plus the office towers to buy or let and do not forget the house which Madoff once used to live in! Then times this by the number of towns and cities in the USA and what do you get......................
This is not the time to buy or invest in building businesses as the debts have to be restructured in order to satisfy new lending criteria which the banks will have to imposse.
Be realistic as this is the new byword in the UK and should be for you American investors.

Feb 25 09:57 AM

[ConstIndust...:]

Are you serious??? You think this crises in the building industry is over because of a few words from Bernanke and Obama. Do some research on Bernanke's May 2007 predictions on the subprime catastrophe: "we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system." If he was this wrong two years ago why should his predictions today be any better?

Feb 25 10:46 AM

[ETFDesk dot...:]

Thomas, good points, but I think you may be early..Keep in mind EXISTING home inventory is ~3.6M units (~9.6months of supply) at current absorption levels, NEW homes (under construction and completed) is 312K (12.9months of supply). Foreclosures is ~1.9M (~1.5 years). (keep in mind this isn't an apples to apples comparison). Additionally, peoples biggest asset isn't their home, its their job. And therefore, as unemployment increases who is going to be confident to buy homes. Lastly, you reference being a landlord - maybe (REZ) iShares Resedential Index Fund is a better play...

ETFDesk.com

Feb 25 12:01 PM