Homebuilder ETFs Send Mixed Signals

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Includes: ITB, XHB
by: Tom Lydon

Homebuilder ETFs are up about 11% over the last two weeks, yet the housing market is still feeling some pain. What gives?

If nothing else, the real estate market is showing some signs that the worst is over. The housing market may be able to dodge a double-dip recession, and maintain a sustained recovery as foreclosures mount and the nation’s unemployment rate sticks close to 10%.

On the upside, pending sales of U.S. homes unexpectedly rose 10% in October from a month earlier, and analysts say that the quality of the buyer is a big reason. More serious homebuyers are coming into the market, they are ready to buy and they can afford the homes, says The Daily Crux.

The biggest risk for real estate is the unemployment rate. Treasury bond yields are also rising, putting many would-be homebuyers at risk for rising mortgage rates, reports Reuters.

Either way, David Sterman for Seeking Alpha says that the sector is in bargain territory. The low, affordable prices, mixed with low mortgage interest rates (for now) is a winning combo.

Whatever the housing market is doing, it clearly doesn’t seem to be bringing homebuilder ETFs down. You can’t fight the trend, but have an exit plan, because this market is far from out of the woods.

There are two ways to play homebuilders with ETFs: SPDR S&P Homebuilders (NYSEArca: XHB), which concentrates primarily on homebuilder stocks, and iShares Dow Jones U.S. Home Construction (NYSEArca: ITB), which has a larger holding in home retailers in addition to homebuilders.

Tisha Guerrero contributed to this article.

Disclosure: None