Light at the End of the Tunnel for Homebuilder ETFs?

by: Tom Lydon

The real estate sector is a closely-eyed barometer of the broader economic recovery. Despite the market’s challenges of late, these exchange traded funds might still be an opportunity if the sector makes all the right moves.

The broader economic recovery has been tepid, but the real estate sector continues to deliver numbers that surpass expectations:

  • Existing home sales in April gave the market its biggest jump in five months. Sales surged 7.6% thanks to tax credits and low mortgage rates, which are at 50-year lows.
  • The surge in home sales helped raise prices, too; the median price of a home rose 4% from a year earlier. Bear in mind, though, that we’re working off some very low prices to begin with as a result of the bubble’s collapse.
  • Housing starts increased to a seasonally-adjusted annual rate of 672,000 last month, as new home construction skyrocketed 40.9% in April compared to last year. Julianne Pepitone for CNN Money reports that new construction of single-family homes, the key sector of the housing market, rose 10.2% over the month to an annual rate of 593,000.

Applications for building permits actually sank in April, but they were up from 2009 numbers. The tax credit may have had a lot to do with the up surge of housing starts in April, however, the expiration of the credit may have builders on the cautious side.

  • iShares Dow Jones U.S. Consumer Services (NYSEARCA:IYC): Home Depot (NYSE:HD), 4.1%; Amazon (NASDAQ:AMZN), 3%; Target (NYSE:TGT), 2.6%; Lowe’s (NYSE:LOW), 2.5%; Time Warner (NYSE:TWX), 2.4%

  • Retail HOLDRs Trust (NYSEARCA:RTH): Target, 8.4%; Home Depot, 12.8%; Lowe’s, 6.8%; Costco, 4.8%

  • iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB)

  • SPDR S&P Homebuilders (NYSEARCA:XHB)