The housing momentum seen in 2012 and in the first half of 2013 has slowed down in the past 3-4 months due to the recent spike in mortgage rates, rising home prices, tight credit availability and the political uncertainty in Washington.
Though interest rates are rising, these are still below historical levels and housing is still affordable. In addition, accelerating job growth and increasing consumer confidence are also boosting demand for new homes.
Supply, however, is constrained by low home inventories, both of new single-family and multi-family homes. A shortage of land and labor is restricting the construction of homes, both single and multifamily. Home prices have thus started to move up with market demand gaining momentum and supply remaining limited.
Rising home prices and the spike in interest/mortgage rates since May this year slowed down the pace of orders and traffic. Buyers were taken unawares by the sudden increase in rates and a few put off their purchase decision, thereby increasing cancellation rates and lowering orders for most homebuilders in the last reported quarter.
However, most homebuilders believe that this is only a temporary factor and are confident of demand picking up in future quarters. These builders expect buyers to adjust to rising prices and interest rates and return to the market. Also, Federal Reserve’s promise to keep interest rates low for some time despite tapering its $85 billion stimulus plan by $10 billion from Jan 2014 removes a major overhang for the homebuilders. (Read: Fed Tapers Bond Purchases: 3 ETFs in Focus on the News)
A slew of housing data released lately clearly shows that housing recovery is still on. Data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau showed that sales of newly built, single-family homes rose 25.4% in October. Another data release by the department showed that November housing starts surged to their highest in nearly six years.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), known as the homebuilder sentiment index, jumped 4 points to 58 in December from 54 in July. This was the seventh consecutive monthly increase in the index, showing that the recent interest rate hikes have not dampened the housing recovery completely. The Consumer Confidence Index also rebounded in December after declining in November.
ETFs to Tap the Sector
With this in mind, it could be time to give this segment a closer look. For investors looking to play the homebuilding sector in a less risky way, an ETF approach can be a good idea.
This technique can help to spread out assets among a wide variety of companies and reduce company specific risk for a very low cost. Below, we highlight three ETFs that are worth a look in this sector:
SPDR S&P Homebuilders (NYSEARCA:XHB)
XHB is one of the more popular homebuilding ETFs in the market today with assets under management of around $2.0 billion and a trading volume of roughly 5.3 million shares a day. The fund has an expense ratio of 35 basis points.
The fund holds 35 stocks in its basket, with 44% of the assets going to mid cap and 15% comprising large cap stocks. Despite the smaller holding pattern, the fund does not appear to be concentrated in the top ten holdings.(...)Click here to continue reading the original ETFDailyNews.com article: Quick Investor Guide To Homebuilder ETFsYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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