Homebuilding exchange traded funds (ETFs) have been seeing a nice rally in the last month, but is it for real?

One Merrill Lynch economist says there are a few factors that indicate that it probably isn’t, reports Jesse Emspak for Investor’s Business Daily.

  • Homes are now sitting on the market for longer than any other time in history. According to the U.S. Census, since 2006 the average time has gone up from three and a half months to nine. Even in the 1991 housing slump, it took eight months.
  • Existing homes have been reached between 10-11 month supplies.
  • Credit requirements for consumers are continuing to tighten up.

It can’t help that in some U.S. cities, homes are selling at a big discount from what it cost to build them. Paul Kedrosky for Infectious Greed found the chart showing that Detroit, Fort Wayne and Pittsburgh lead the way. It seems like a situation that could really ding the homebuilding business.

SPDR S&P Homebuilders (XHB) is down 10.6% year-to-date, but have shown a small rally in the last month, up 8.6%.

iShares Dow Jones US Home Construction (ITB) is down 15.1% year-to-date, but up 8.5% in the last month.

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.