Should You Buy Housing ETFs Now?

Includes: HOMX, ITB, XHB
by: Zacks Funds

The housing industry is steadily picking up pace as evident from the numbers released recently. Housing starts rose 0.2% in July to a seasonally adjusted annual rate of 1.21 million last month, the highest since October 2007. Starts on single-family houses surged 12.8% last month.

This morning, the National Association of Realtors reported that its pending home sales index increased 7.4% year over year in July. Sales of new homes surged 26% last month, compared with July last year. Last week, the National Association of Home Builders reported that homebuilder sentiment rose to its highest level since November 2005.

The housing market has been attracting many buyers and renters of late, thanks mainly to steady gains in the job market and low mortgage rates. In fact, even though builders have ramped up construction, the demand still exceeds supply, pushing up prices.

Homeowners are also willing to spend more on upgrades and improvements as evident from Home Depot's (NYSE:HD) strong results last week. The company raised its guidance for the second time this year.

Even with strong gains of late, the housing market is nowhere near bubble levels as housing starts of about 1.5 million are considered "normal" by economists. Further, despite low rates, mortgage originations have seen weak growth in 2015, mainly due to tight credit standards and low levels of refinancing. With improving economy and labor markets, banks could loosen their standards for homebuyers. Lastly, the Fed may keep rates unchanged this year in view of the recent market turmoil. All these factors are likely to support the housing market in the coming months.

In the short video below, we have discussed three housing ETFs - the iShares Dow Jones US Home Construction ETF (BATS:ITB), the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) and Etracs ISE Exclusively Homebuilders ETN (NYSEARCA:HOMX) - which are actually very different in terms of their exposure to homebuilding and related sub-industries.

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