Builder ETFs in Focus on Pending Home Sales

May 27th at 7:34am by Tom Lydon

Homebuilder exchange traded funds have risen this week as investors have digested reports on new-home sales, house prices and Toll Brothers (NYSE: TOL) earnings. On Friday, markets will get a report on pending home sales for April.

The National Association of Realtors is releasing its pending home sales report on Friday, another indicator of U.S. economic momentum.

Economists are expecting pending home sales to fall 1% in April, over March, for homes that are put under contract across the nation. Some analysts are calling a stop to the upside within the sector, after two months of increases in a row, February and March. [Homebuilder ETFs Slip On Weak Housing Starts.]

“Builders are coming out of hibernation,” a paper quoted Irvine-based housing consultant John Burns as saying. “Builders are an optimistic breed, but I can assure you that most of them are cautiously optimistic about 2011. The memories of the last five years haunt them.”  [Housing ETFs Gain on Toll Brothers.]

Overall, the housing market is lagging and falling home prices, mixed with low activity, are adding to the prospect of a correction after two months of higher numbers. According to Forex Crunch, the strong rise in new home sales seen Tuesday this week is a welcome surprise and could pave the way for a surprise in pending home sales.

SPDR S&P Homebuilders (NYSEArca: XHB) and the iShares Dow Jones U.S. Home Construction (NYSEArca: ITB) both track the housing market. XHB is up 10% year-to-date.

Foreclosures may have peaked, coming down a bit from the first quarter, with a lower share of distressed sales to existing home sales seen in April. Even as interest rates are falling to their lowest levels in six months, this may not be enough to rally homebuilder shares and ETFs.

Tisha Guerrero 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.

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