From low interest rates to falling prices, there are plenty of things driving the housing market. The questions is whether that’s enough to make a case for being in homebuilder exchange traded funds (ETFs).
Pending home sales rose a record 10% in October, bolstering hopes that the sector is firmly on the mend. By all appearances, the recovery should be more firm. After all, home prices are low and falling lower, interest rates are at rock-bottom, there’s job growth (however tepid) and even some income growth. [Homebuilder ETFs Wait On Recovery.]
So what’s holding the housing market back from a full recovery?
- Corbett B. Daly for Reuters reports that the plug for the administration’s Home Affordable Modification Program, HAMP, will be pulled soon. Treasury launched HAMP to try to find a way to reduce mortgage payments for struggling homeowners who wanted to keep their homes but who were at imminent risk of foreclosure. Much like the tax credits that expired in April, it’s not clear if the market can sustain the loss of such supports.
- Some are just waiting for the bottom. Les Christie for CNN Money reports that although conditions for buying a home are ideal, buyers are wary of jumping in now and missing out on even better deals later. [Homebuilder ETFs Looking for Their Break.]
The two homebuilder ETFs – SPDR S&P Homebuilders (NYSEArca: XHB) and iShares Dow Jones U.S. Home Construction (NYSEArca: ITB) – are still above their long-term trend lines, but they’ve trailed the markets in the last few months. Housing could still be weak for the time being – even homebuilders’ optimism has been way down this year. As long as this recovery is tepid and job growth is nil, real estate may be in for a bumpy ride yet.
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.