The real estate market has been stuck in a lull for years now, but Wall Street’s so-called smart money is expecting a recovery in housing. Investors who believe in a continued rebound may take a look at real estate-related exchange traded fund options.
While housing starts numbers were weaker-than-expected for February, January data was revised upward and building permits rose 5.1% to pre-2008 financial crisis levels, reports Aaron Task for The Daily Ticker.
“The thinking is we’ve bottomed out and we’re going slowly start rebounding in terms of pricing,” Greg Zuckerman of The Wall Street Journal said in the report. “Over the last couple of months some of the best investors on the street…have been making big bets on homebuilders.”
Firms like SAC Capital, Blackstone and Caxton Associates are among the funds taking on a greater weighting in homebuilders. [Homebuilder ETFs Double S&P 500’s Return]
Housing market bulls point to real estates’ low affordability as a result of low interest rates, heavy price slashes since the 2006 highs and pent-up demand from new families and young adults. [Real Estate: List of REIT ETFs]
However, the naysayers note that home prices are still high on a historic basis and prices have yet to fall below fair value, which usually occurs after a bubble. Additionally, they add that there is still a “shadow inventory,” foreclosures are rising, unemployment remains elevated and Treasury yields are increasing.
Existing home sales dropped 0.9% in February from January to 4.59 million, but it was still the strongest February in five years, report Allan Zibel and Eric Morath for The Wall Street Journal. The National Association of Realtors stated that February sales were 8.8% higher year-over-year and the first two months of the year showed the strongest start since 2007.
“We feel very good about the latest sales trend,” said Lawrence Yun, National Association of Realtors’ top economist. “Buyers are very serious this year.”
Housing-related ETFs are among the best performers, including:
- SPDR S&P Homebuilders ETF (NYSEArca: XHB): up 25.0% year-to-date
- iShares Dow Jones u.S. Home Construction Index Fund (NYSEArca: ITB): up 25.8% year-to-date
- iShares Dow Jones U.S. Real Estate Index Fund ETF (NYSEArca: IYR): up 9.9% year-to-date
SPDR S&P Homebuilders ETF
For more information on the real estate market, visit our real estate category.
Max Chen contributed to this article.