You knew the tax credits and other incentives couldn’t last forever. Homebuyers will no longer get a tax break when they buy a new home after the end of this month. It could spell trouble for homebuilder exchange traded funds (ETFs), which have performed solidly so far this year.
Homebuilder shares and ETFs rose quickly as government incentives and record low mortgage rates lured buyers out of the woodwork. First-time buyers can get a tax break of up to $8,000 if they sign a contract by April 30. Lawmakers also added credit of $6,500 for existing homeowners who move. The mortgage rates are at lows right now with the possibility that they may inch upward later this year. [Why Homebuilders Have Been Quietly Making Gains.]
The lures worked. Pending home sales rose sharply in February to beat expectations as buyers took advantage of government incentives before a deadline at the end of this month, says BusinessWeek. But is the housing market ready to stand without the assist?
Although homebuilder shares are looking healthier, Credit Suisse has cautioned that it may not last. Joanna Ossinger for Bloomberg reports that U.S. homebuilders may underperform the overall stock market this year and demand for homes could wane after incentive programs are expired. U.S. home prices are now at levels seen in late 2003. [Real Estate ETFs: Big Improvements, Big Challenges.]
The fate of the real estate market is still an unanswered question. Have a stop loss in place if the prognosticators turn out to be spot-on. [How to Set a Stop Loss.]
For a comparison of the two homebuilder ETFs, go here.
For more stories about homebuilders, visit our homebuilders category.
- SPDR S&P Homebuilders (NYSEArca: XHB):
- iShares Dow Jones U.S. Home Construction Index Fund (NYSEArca: ITB)