Two exchange traded funds (ETFs) in one of last year’s weakest sectors, home construction, are beginning to show renewed vigor.

In the last two weeks, both SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB) are up 19.7% and 16.6%, respectively. Last year, XHB was down 48.1%, while ITB lost 58.4%.

The funds got another boost this morning when a trade group reported that existing home sales in the United States rose unexpectedly in February, by 2%, reports Wanfeng Zhou for Thomson Financial.

This doesn’t mean the sector is fixed, though – sentiment is still near historic lows this month, according to the National Association of Home Builders. We’re still in the midst of the worst housing slump since the Depression, and it’s keeping buyers and financing in short supply.

The rate cuts by the Federal Reserve are giving a lift to the sector, though. And the House Financial Services Committee Chairman Barney Frank has announced a proposal for legislation to allow the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. If the program goes through, it would allow the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages.

If you’re ready to do some bottom fishing, wait until XHB crosses its 200-day moving average and set an 8% stop loss.


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.