ETFs for the (Slowly) Improving Housing Market

January 20th at 11:00am by Tom Lydon

December’s jump in existing home sales has given exchange traded fund (ETF) investors cause for a little more optimism. But is it really time to dive in now?

  • Existing home sales jumped 12.8% last month. That’s stellar, especially when you consider that this was all in the midst of the East Coast’s “snowpocalypse.”
  • Building permits for new homes rose 5.5% in December. It was the third largest monthly increase and the biggest jump since last March.

On the down side, however, there are still some issues to contend with. Julie Schmit at USA Today cites a few trouble spots and signs that this recovery could be tempered:

  • Unemployment is still high. Even though it declined to 9.4%, that’s still the kind of number that doesn’t exactly inspire confidence.
  • The inventory of unsold homes is at 8.1 months. It’s better, but still above the normal six month level.
  • The last two years have been the worst on record for homebuilders in at least 50 years.
  • The homebuilder sentiment index hasn’t budged since November. It’s stuck at 16; anything above 50 is a positive sentiment.

Does that mean you should stay away? Not necessarily. Real estate is still so far off its highs that a recovery presents an enormous opportunity. If you’re comfortable with the knowledge that this return to normal will be a long slog and you’ve got a sell strategy in place, consider these funds as a play:

  • Direxion Daily Real Estate Bear 3x Shares (NYSEArca: DRV) and ProShares Ultra Real Estate (NYSEArca: URE) are leveraged plays on the housing market; DRV is designed to move 3x the Real Estate index, which tracks equity REITs; URE is designed to deliver twice the performance of the Dow Jones U.S. Real Estate Index.
  • iShares Dow Jones U.S. Real Estate Fund (NYSEArca: IYR) tracks the same index URE does and it’s made up of REITs.
  • SPDR S&P Homebuilders (NYSEArca: XHB) tracks the nation’s largest homebuilders along with a few retail companies that profit when the housing market is doing well.

There’s no truly direct way to play the housing market with ETFs outside of homebuilder and REIT funds. Maybe along with the recovery will come more options? Here’s hoping.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.