Exchange traded funds tracking homebuilders and related housing subsectors fell Monday after a report estimating existing home sales rose in October.
SPDR S&P Homebuilders (NYSEArca: XHB) and iShares Dow Jones U.S. Home Construction (NYSEArca: ITB) were off more than 1% after the National Association of Realtors said existing home sales rose 1.4% last month. However, the cancellation rate spiked to 33% in October.
Standard & Poor’s Equity Research in a note Monday said it has a neutral fundamental outlook for the homebuilding industry for the next 12 months.
“Assuming price stability in the second half of 2011, we believe most publicly traded builders are in a stable competitive position after reducing costs, retiring debt and increasing cash positions,” S&P said. “We think the housing market will improve slowly in the next year as it will take time before buyers’ confidence and the job market improve to support a more favorable view of home ownership.”
Recent housing data suggest builders are slowing beginning to increase construction activity after adjusting for the distortions due to the homebuyer tax credit, Deutsche Bank analysts said. [ETF Chart of the Day: Homebuilders]
“If the economy can continue to firm and accelerate job growth in the next few months, we think the macro new housing data could finally begin to give more conclusive evidence that housing recovery is gaining steam. This would serve as a long-awaited catalyst to change investor sentiment, which has stubbornly resisted the notion that housing recovery is possible in the near- to medium-term,” the analysts said.
“For the overall U.S. housing market, we believe the first half of 2011 proved to be a disappointment, and we see housing demand remaining tepid in the second half,” S&P added. “We believe the key factors that would drive an improved housing market are an increase in buyers’ confidence with improving job conditions, available mortgage credit from lenders, a better balance of new and existing homes available for sale, and an easing of increased foreclosed properties, which continues to put downward pressure on housing prices.”
SPDR S&P Homebuilders
