ETF Trends
ETF Trends

Although the numbers are getting “less bad,” make no mistake: the real estate market and homebuilder exchange traded funds (ETFs) are still struggling. What’s it going to take for this market to get solidly back on track?

We’ll get our first clue tomorrow, when the National Association of Home Builders tells us how confident (or not) builders around the country are feeling.

Clues about how confident they are can be found in third-quarter earnings and other recent reports:

  • Canadian Business online reports that major homebuilder D.R. Horton reported a 21% decline in orders, a mark that the housing market is still down. D.R. Horton Inc. said Friday its revenue slid 9 % in its fiscal fourth quarter on fewer sold homes.
  • Home prices continue to decline. According to Brett Arends for The Wall Street Journal, the average home price fell 1.2% nationwide. The Federal Reserve data on home values suggests U.S. homeowners lost another $200 billion in net worth from July through September. [Home Sales Fail to Ignite ETFs.]
  • Pending home sales are way off. Would-be homebuyers are simply too uncertain about the future to make the leap, says Audrey Howard on America News Online. Consumers are worried about jobs, the broader economy and the fact that the market still isn’t totally healthy, and it’s keeping them away. [Homebuilder ETFs Wait On Recovery.]
  • It’s telling that despite falling prices and low, low mortgage rates, potential homebuyers still aren’t budging.

Add to all this that the two homebuilder ETFs are both below their long-term trend lines and down by double digits in the last six months. If homebuilders are a market you want to be in, consider the fundamentals and watch the 200-day for clues of a recovery, and be prepared with an exit plan if this sector continues to hurt.

  • SPDR S&P Homebuilders (NYSEArca: XHB): XHB is more of a retail play, composed largely of companies that benefit when people are buying homes. Top holdings include Tempur-Pedic (NYSE: TPX), Aaron’s (NYSE: AAN) and Williams-Sonoma (NYSE: WSM). Homebuilders also appear: Toll Brothers (NYSE: TOLL), Lennox International (NYSE: LII) and DR Horton (NYSE: DHI) are all top holdings.
  • iShares Dow Jones U.S. Home Construction (NYSEArca: ITB): ITB keeps its focus largely on homebuilders like DR Horton, Lennar and Toll Brothers, but retailers like Ethan Allen (NYSE: ETH), Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD) also make an appearance.

Tisha Guerrero 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.