ETF Trends
ETF Trends

Homebuilder ETFs may be poised for a drop after storming ahead of the S&P 500 over the past year. Options traders are taking a cautious stance on the sector, pending home sales are down and the builder ETFs are facing key resistance levels that could derail the rally.

Despite the slight drop in pending home sales last month, homebuilder ETFs rebounded somewhat Thursday following a three-day slide from multiyear highs. Pending home sales are seen as one leading indicator for the housing market. [Builder ETF Highest Since 2007]

The National Association of Realtors said its Pending Home Sales Index for contracts signed in August declined 2.6% to 99.2, but it remained 10.7% higher year-over-year, Reuters reports. The reading in July was 101.9, the highest since April 2010.

“The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country,” the association’s chief economist, Lawrence Yun, said in the article.

Nevertheless, Yun expects overall home sales to be higher in 2012, compared to last year, with a 9% rise to 4.64 million units, reports Diana Olick for CNBC.

“Fixed mortgage rates continued to decline this week, largely due to the Federal Reserve’s purchases of mortgage securities, and should support an already improving housing market,” Frank Nothaft, vice president and chief economist, Freddie Mac, said in an NBC article.

As a result of the Fed’s quantitative easing measures, the 30-year loan rate dropped to a record low 3.40% and the 15-year fixed mortgage rate dipped to 2.73%.

Other housing analysts, though, caution that the housing recovery is being fueled by cash-flush investors and sales could drop in the end of the year due to bank delays and loan modifications.

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