When Real Estate and ETFs Hit Bottom, How Long Will It Stay There? | ETF Trends

The housing market, along with related exchange traded funds (ETFs), may see a bottom eventually, but this low point could drag on for awhile.

The U.S. housing market slump that caused median home values to depreciate 24% since 2006 could bottom out next month but economists at Fannie Mae and Freddie Mac think a recovery won’t come until another year, writes Kathleen M. Howley for Bloomberg.

The economists also calculated that existing home sales won’t be selling at pre-boom levels until the third quarter of 2010 and home constructions won’t touch 1 million until 2011. For 2009, building starts will only total 496,000 homes, or the lowest since the end of World War II.

A backlog of bank-owned properties and foreclosures on pay option adjustable-rate mortgages will stop housing from playing its traditional role of boosting the economy. Analysts at Bloomberg estimate the world’s largest economy will only grow 1.9% next year.

Home prices in 20 major cities dropped 18.7% in March year-over-year as a result of foreclosures. The national median home price will continue to drop until 2011. The nationwide average home price has fallen 12%.

While it’s fine to try and spot bottoms, we suggest that you have a strategy in place and watch the trend lines in order to be sure that a bottom has indeed been hit.

  • First Trust S&P REIT Index Fund (FRI): down 10.2% year-to-date


  • SPDR S&P Homebuilders (XHB): up 3.4% year-to-date


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.