ETFs to Capture a Turnaround in the Housing Market

August 8th at 7:05am by Tom Lydon

The housing market has stagnated for years after the subprime bust and financial crisis, but the sector, along with related exchange traded funds, is finally starting to show signs of a recovery.

Clayton Homes, the largest producer and financier of U.S. manufactured homes, announced last Friday that second-quarter pretax earnings jumped 45%, reports Sue Chang for MarketWatch. [Homebuilder ETFs Rally on Housing Bottom Calls]

“Revenues from home sales increased $40 million (11%) in the second quarter and $103 million (16%) in the first six months, due primarily to increases in units sold partially offset by slightly lower average prices,” according to a Berkshire Hathaway regulatory filing.

“We would like to think that housing is finding its equilibrium, that it is searching for a bottom and establishing a base,” Steven Jones, an investment manager at First Washington, said in a recent report.

Economic data reveals historic low new-home inventories, rising homebuilder sentiment and four consecutive months of higher home prices; however, Yale University professor Robert Shiller remains skeptical, pointing to the lack of momentum behind the recovery, writes Joe Light for WSJ Total Return.

“It could be [a bottom]. It’s a real possibility. I just don’t know,” Shiller said in the article.

Shiller believes the “feedback loop,” where the mass word-of-mouth testimonies of better prices contributes to opportunistic demand and even higher prices, has not taken hold just yet. He also points to negative factors that still weigh on the market, including a large overhang of homes and an unemployment rate above 8%.

Nevertheless, ETF investors interested in following the housing market may look at funds that track homebuilders:

  • SPDR S&P Homebuilders ETF (NYSEArca: XHB)
  • iShares Dow Jones US Home Construction Index Fund (NYSEArca: ITB)
  • PowerShares Dynamic Building & Construction Portfolio (NYSEArca: PKB)

Additionally, investors may also gain exposure to real estate investment trusts through REITs ETFs, including:

  • Vanguard REIT ETF (NYSEArca: VNQ)
  • iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR)
  • iShares Cohen & Steer Realty Majors Index Fund (NYSEArca: ICF)
  • SPDR Dow Jones REIT ETF (NYSEArca: RWR)

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

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.