Builder ETFs Suffer from Oversupplied Market, Falling Prices | ETF Trends

Homebuilder exchange traded funds (ETFs) were fractionally higher Tuesday after the S&P/Case-Shiller home price index revealed a 1.1% decline in home prices in February.

Despite higher home sales and a dip in the number of new properties, the housing ETFs may still be pressured by an oversupplied housing market.

Single-family home sales increased a higher-than-expected 11.1% annually in March, reports Lucia Mutikani for Yahoo! Finance. Meanwhile, inventories of new properties in March dropped to 183,000, a low last seen in August of 1967. [Homebuilder ETFs and Mortgage Rates.]

Nevertheless, the market has been inundated with previously owned homes and foreclosed properties, and homebuilders are now putting off new home construction. As of March, 3.55 million previously owned houses are on the market, which is above the average rate of 2 million to 2.5 million. Economists calculate that supply is somewhere between 8 million to 9 million, including foreclosed homes.

Prajakta Bhide, a research analyst at Roubini Global Economics, remarks, “home sales are stabilizing but we continue to see housing demand as moving sideways, more than accelerating in 2011.” Standard’s & Poor’s Rating Services believes that U.S. homebuilders will continue to experience a rough patch that won’t be alleviated until next year.

So far, the overall housing market has been held back by high jobless rates and bad weather that depressed new home sales.

For more information on the real estate market, visit our real estate category.

  • SPDR S&P Homebuilders (NYSEArca: XHB)
  • iShares Dow Jones US Home Construction (NYSEArca: ITB)

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.