Homebuilder ETFs Try Another Breakout On Positive Housing Data

Includes: ITB, XHB
by: Tom Lydon

Homebuilder ETFs are trying to break out yet again on the latest round of upbeat data on the housing market. Some investors have scaled back on builder ETFs, or hedged recently, after the sector funds doubled in price the past year. So a fresh rally may cause traders to chase the breakout.

The homebuilder sector surged Wednesday on the strongest housing starts data in four years, with home construction exchange traded funds now trying to break out to new 52-week highs.

The iShares Dow Jones U.S. Home Construction Index Fund (NYSEARCA:ITB) was up 2.8% Wednesday, and the SPDR S&P Homebuilders (NYSEARCA:XHB) was 1.8% higher.

Housing starts in September rose to a better-than-expected 872,000 annual rate, up 15% to its highest since July 2008, Bloomberg reports. Additionally, a rise in building permits could indicate that gains in the housing sector will be sustainable.

"It's no longer a question of whether the industry is rebounding," Larry Sorsby, chief financial officer of Red Bank, said in the article. "There is clear evidence that we have bounced off the bottom and are in the midst of a recovery."

Low mortgage rates, smaller housing inventory and a growing population would help support homebuilders going forward.

The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 in October, up from 40 in September, hovering at its highest level in six years, reports Alex Veiga for the Associated Press.

"It's another data point suggesting that housing has turned the corner," Paul Ashworth, an economist at Capital Economics, said in the AP article.

"There is going to be a continued housing recovery over the next few years," Larry Seay, chief financial officer at Meritage Homes, said in the Bloomberg article. "Pent-up demand that has built up from people deferring household formation is going to help buoy the recovery. High affordability not only with house prices being very low, but also interest rates being as low as they've been in decades, and all that translating into an improved buyer confidence."

On Friday, observers will look for existing home sales data to reaffirm what many believe to be a turnaround in the housing market.

iShares Dow Jones U.S. Home Construction Index Fund

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Max Chen 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.