Homebuilder ETFs Rally On Housing Data

Includes: ITB, XHB
by: Tom Lydon

U.S. homebuilder confidence rose this month to its highest level in six years and analysts expect the housing recovery to strengthen in the next six months. SPDR S&P Homebuilders Index (NYSEARCA:XHB) has gained about 30% over the past three months, as sentiment toward the housing market has started to turn more positive.

"There are many reasons to feel good about housing, including data that we saw today," said Elizabeth Ptacek, real-estate analyst at Cleveland's KeyBank. "There's not much positive out there and housing represents a bright spot."

The National Association of Homebuilders/ Wells Fargo builder sentiment index showed a 40% increase in September. This is the highest reading since June of 2006, just before the housing bubble burst, reports Associated Press. Builders also reported seeing the best sales level since July 2006, while turnout by prospective buyers returned to levels not seen since May 2006.

Furthermore, sales of newly built homes are up as well as sales of previously occupied homes. Home prices are inching up and inventory of foreclosures and available home supplies are down.

Still, unemployment remains a headwind with the jobless rate at 8.1%. The housing market can not make a full recovery until the jobs market has.

XHB has gained more than 50% year-to-date, reports Cinthia Murphy for Index Universe. Likewise, the iShares Dow Jones U.S. Home Construction Index Fund (NYSEARCA:ITB) has gained an impressive 70% year-to-date and has been the year's top performing ETF so far among unleveraged funds.

"Recent data suggests that home prices are up more than 3% from a year ago and as much as 9% from lows reached this spring," says Robert Johnson, director of economic analysis with Morningstar. "New housing starts and existing home sales have both had quite a run. In some cases, housing data has been improving for more than six months in a row, suggesting that just maybe we are building a virtuous cycle of momentum in this heretofore left-for-dead sector."

iShares Dow Jones U.S. Home Construction Index Fund

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Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.