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.