Are Homebuilder ETFs Worth the Risk?

Includes: ITB, LEN, PKB, XHB
by: Gary Gordon

According to internal estimates in China, economic growth slowed more than investors had been hoping for. That idea renewed fears that China may be tightening its growth reins a bit too harshly.

Zip-lining over to Europe, there are freshwater concerns about European banks. At present, they need to repay hundreds of billions in euros in emergency loans that they received, giving rise to panic about money availability in the financial system.

As if the U.S. markets weren’t already flustered by the international headlines, the Conference Board’s Consumer Confidence Index fell off the proverbial map. Sentiment dropped a seismic 10 points from 63 (62.7) to 53 (52.9). Indeed, the prevailing belief is that consumers will be hesitant to open their wallets in the near future.

And yet, in the middle of all the June gloom, one sector may have gotten a boost. Keefe Bruyette & Woods upgraded Lennar (NYSE:LEN) to outperform from market perform. The upgrade comes in spite of a troubled housing picture and in spite of the end to the federal homebuyer tax credit.

Lennar, one of the benchmark homebuilders, may have attractive earnings prospects, favorable investment properties, solid cost cutting measures and improved operating income. Keefe Bruyette even raised its earnings estimates for Lennar.

Nevertheless, nothing was about to derail the freight train momentum of falling equities. What’s more, Homebuilder ETFs have managed to hit 52-week lows. So it makes you wonder… are these the falling knives of opportunity that you really want to catch?

Homebuilder ETFs: Catching Falling Knives At 52-Week Lows
Approx % Off 52-Week High
PowerShares Dynamic Building/Construction (NYSE:PKB) -21.1%
State Street SPDR Home Builders (NYSEARCA:XHB) -27.3%
iShares DJ Home Construction (BATS:ITB) -27.7%

Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.