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It may not feel like a turnaround is underway in the housing market, but the numbers are beginning to back up the theory. The most recent S&P Case-Shiller Home Price Index showed that all 20 of the cities tracked had gains in May. The total 20-city composite rose 2.2% for the month with gains of over 4% for both Chicago and Atlanta.

Looking at a year-over-year basis, the prices remain lower by 0.7%; however, the number is the smallest loss in 18 months. The trend is clearly improving, and more importantly, it is wide spread as evidenced by the broad-based gains in different regions of the country.

There are a plethora of ways to play a continued rebound in the housing market that range from the homebuilders to the building supply companies to the home improvement stores to the raw material suppliers. Attempting to pick the individual winners in each category can be tough. Therefore, a better option could be the related ETFs.

Homebuilder ETFs

The best way to play the homebuilder stocks is through the iShares Dow Jones US Home Construction ETF (NYSEARCA:ITB). The portfolio of 27 stocks has approximately two-thirds of its assets invested in the homebuilders. Building materials and fixtures make up 17% and home improvement retailers account for 11%. The top five holdings make up 49% of the ETF and are all homebuilders; the top two are D. R. Horton (NYSE:DHI) and Lennar Corp. (NYSE:LEN). The expense ratio is 0.47% and the 30-day SEC yield is 0.53%. Year-to-date, the ETF is up 39% and is trading a few percentage points off a four-year high.

Despite its name, the more diverse option is the SPDR S&P Homebuilders ETF (NYSEARCA:XHB). The ETF is made up of 29% homebuilders, 26% building products, and 15% home furnishing retailers. There are a total of 37 stocks in the portfolio with the two largest accounting for 8% - PulteGroup (NYSE:PHM) and Lumber Liquidators Holdings (NYSE:LL). Both stocks are trading near highs. The ETF charges an expense ratio of 0.35% and has a 30-day SEC yield of 0.60%. Due to its more diverse approach, the ETF is lagging the year-to-date return of ITB, but is still able to beat the market with a gain of 25%.

The third option is the worst performer this year with a gain of 17%. The PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA:PKB) is composed of 30 stocks that are primarily in the industrials and consumer discretionary space as categorized by the ETF company. The top ten holdings have one homebuilder and the top two holdings are Vulcan Materials (NYSE:VMC) and Home Depot (NYSE:HD). The focus for PKB is on the construction aspect with a heavy exposure to engineering companies that are involved in non-residential building. The expense ratio is 0.63% and the 30-day SEC yield is 0.17%.

The Right Choice

The best ETF for your portfolio depends on the strategy that is being tried to be achieved. However, if the goal is to capture the continuing turnaround in the residential housing market, the best choice will ITB due to its exposure to the homebuilding stocks. The second choice would be XHB because it also has exposure to the homebuilders along with some secondary sectors that should join in the rally if the housing rebound continues. The last choice would be PKB because of its reliance on commercial and international projects.

Of course, all of this assumes the U.S. economy does not move into recession and that the housing market continues to improve at a steady pace. My best guess is that the upside greatly outweighs the downside when it comes to housing-related stocks in the coming year.

Source: ETFs To Play A Housing Rebound