ETF Trends
ETF Trends

Exchange traded funds that invest in homebuilders and housing-related stocks soared Tuesday after the government said U.S. housing starts jumped 14.6% in June, well above expectations.

SPDR S&P Homebuilders ETF (NYSEArca: XHB) and iShares Dow Jones US Home Construction (NYSEArca: ITB) both gained about 3%. The major stock indexes closed Tuesday with their best day of 2011 after President Barack Obama touted a bipartisan plan to cut the deficit, fueling hopes a deal will be reached in Washington on the U.S. debt limit.

Industry confidence rose in July as the National Association of Home Builders/Wells Fargo Housing Market Index rose to 15 from 13 the previous month, according to a report Monday. Still, builder sentiment levels remain depressed and investors remain concerned about a double dip in home prices.

“Housing starts and permits in June both exceeded consensus expectations by a comfortable margin, with particular strength in single-family starts and both multifamily starts and permits,” Deutsche Bank analyst Nishu Sood said Tuesday.

“Housing pessimists would not doubt note that housing starts and permits … are still fairly depressed by historical standards; however we think investors have generally become far too pessimistic about housing’s current condition and its recovery prospects,” he added.

Sood thinks the housing market’s main problem is a lack of demand, rather than too much supply amid foreclosures. “Thus, our concerns stem mainly from whether or not the economy can maintain enough momentum to reverse the extremely depressed pace of household formations we have seen over the past five years.”

Other analysts disagree and say that the last thing the market needs is more housing starts with inventories already inflated.

In homebuilder stocks, DR Horton (NYSE: DHI) rallied 5.7% on Tuesday, while Toll Brothers (NYSE: TOL) and PulteGroup (NYSE: PHM) both rose 3.5%.

SPDR S&P Homebuilders ETF

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.