U.S. Recovery Doesn’t Extend To Housing ETFs

April 26th at 6:36am by Tom Lydon

Housing-related exchange traded funds (ETFs) have been stuck in neutral in 2011 as buyers stay on the sidelines, even with median home prices hitting record lows.

In the last quarter of 2010, the number of people who believed a house was a safe investment diminished to 64% from 70% in the first quarter, reports Kathleen M. Howley for Bloomberg. Michael Lea, a finance professor at San Diego State University, remarks that “even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.” The U.S. home ownership rate decreased to 66.5% in the fourth quarter, a 10-year low, and is expected to continue declining.

A home has historically been a safer bet as compared to equities, and record low home prices may make a house a bargain investment. Median home prices dropped to a four-decade low in December. [Homebuilder ETFs and Mortgage Rates.]

However, Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research, cautions that “if we’ve learned anything from this mess, it’s that housing is not a risk-free investment.” Almost 11 million U.S. homes were valued less than their mortgages by the end of 2010, and another 2.4 million hold less than 5% equity. [Will Higher Rates Crimp Real Estate ETFs?]

In March, the number of Americans who plan on purchasing a home in the next six months fell 23%. However, existing home sales are up 2.5% to a 5 million annual rate and work on houses is was up 7.2 over February. Mortgage Bankers Association projects that home sales will increase by 4.1% in 2011, with the largest increase in the second half, and continue to grow 5.9% in 2012.

It should be noted that the number of home sales largely depends on the jobs market.

For more information on the housing market, visit our real estate category.

  • SPDR S&P Homebuilders (NYSEArca: XHB)
  • iShares Dow Jones US Home Construction (NYSEArca: ITB)
  • iShares Dow Jones U.S. Real Estate (NYSEArca: IYR)

SPDR S&P Homebuilders


Max Chen contributed to this article.

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.