Homebuilder ETFs Breaking Out on Budget Deal Optimism

January 2nd at 10:13am by John Spence

Housing ETFs such as iShares DJ US Home Construction (NYSEArca: ITB) and SPDR S&P Homebuilders ETF (NYSEArca: XHB) were breaking out to new multiyear highs Wednesday after U.S. lawmakers finally cinched a deal to prevent the U.S. from falling over the fiscal cliff.

The homebuilder ETFs were up about 3% in early trading and were among the sector leaders in Wednesday’s rally after leaders in Washington reached a last-second compromise that avoided bigger tax increases and spending cuts that threatened to push the U.S. into recession.

The builder ETFs have more than tripled since the 2009 low but they have yet to recoup even half of the losses they suffered during the housing bust. [Homebuilder ETFs Still Well Below 2006 Peak]

Technically, the weekly chart of XHB, one of the homebuilder ETFs, shows “three months of tight basing action at the highs, with a false breakout in early November of 2012 that led to another nine weeks of consolidation,” according to Morpheus Trading Group. “This is the bullish type of price action that leads to sustainable breakouts.”

XHB jumped 57.3% for 2012 while ITB soared 79.4%, according to investment researcher Morningstar.

The homebuilder ETFs were starting 2013 with a bang Wednesday following solid housing data last week.

For example, pending home sales rose 1.7% in November from the precious month to the highest level in two and a half years, the Associated Press reported.

Also last week, the Census Bureau said new home sales climbed 4.4% in November to the strongest pace in over two years, according to CNNMoney.

Finally, the Standard & Poor’s/Case-Shiller 20-city index showed that prices rose by 4.3% from a year ago in October. According to the data, home prices are on track to record their first annual gain since 2006, The Wall Street Journal reported.

SPDR S&P Homebuilders ETF

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