New home sales rocketed 23.6% higher in June from May – a solid improvement and a step in the right direction. But does that mean all is well and it’s time to buy homebuilder exchange traded funds (ETFs)? Here are some reasons why…and why not.
- The numbers surprised economists. Although economists have been known to be flat-out wrong, there’s often a lot of anecdotal evidence behind their predictions. All indications are that lately, the housing market has been so weak that not even record-low mortgage rates can bring out buyers.
- Historically, the numbers aren’t great. In fact, the number of homes sold was the second-lowest on record.
- It may not be because of any actual increase in demand. There was no increase in mortgage applications and the peak selling season – in the spring – is long gone.
- Well, we’ve got to turn around sometime. While home sales are still low and the rate of sales isn’t anything to jump for joy about, the numbers are “less bad,” and that’s something.
- Homebuilder ETFs are actually holding up okay. In the last two weeks, they’ve gained about 7% and are approaching their 200-day.
Either way, the real estate market faces some serious headwinds. The standards for loans are high now, unemployment is still very elevated and the tax credits that had been supporting the market are long gone. The housing market’s recovery may mirror that of the economy’s for the time being: long, slow and not without hiccups.
- SPDR S&P Homebuilders (NYSEArca: XHB): XHB, in addition to holding homebuilders, gives exposure to companies like Pier 1 (PIR), Bed, Bath & Beyond (BBBY) and Aaron’s (AAN) – companies that benefit as consumers outfit their new abodes.
- iShares Dow Jones U.S. Home Construction (NYSEArca: ITB): ITB gives some retail exposure, in addition to holding the country’s largest homebuilders – though not as much as XHB. You can find companies that benefit from a new home sale in here, including Lowe’s (LOW), Home Depot (HD) and Sherwin-Williams (SHW).
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.