Homebuilder exchange traded funds have been the top performers so far this year, and with the Fed intent on keeping borrowing costs low, the sector could continue to reap profits going into 2013.
The iShares Dow Jones U.S. Home Construction Index Fund (NYSEArca: ITB) has been the best performing ETF so far this year, increasing 68.6% year-to-date. While it has shown an impressive run, the fund is still over 50% off its 2007 high. The SPDR S&P Homebuilders ETF (NYSEArca: XHB) was also another top ETF, adding 54.6% year-to-date. [ETF Chart of the Day: U.S. Housing Market]
The Fed’s strategy to keep borrowing costs lower through purchases of home-loan bonds has widened margins in the lending industry, reports Kathleen M. Howley for Bloomberg.
“Homebuilders are getting extra help right now from mortgages,” Jack Micenko, a homebuilding analyst at Susquehanna International Group, said in the article. “They’re over- earning in those areas because lending margins are so wide.”
“The homebuilders are little players in the lending world, but they’re benefitting from the wide margins of the big players,” Michael Widner, an analyst at Stifel Nicolaus & Co., said in the article. “Why charge much less than the banks that are your customers’ alternatives?”
Micenko pointed out that the average gain-on-sale, or difference between the rate homeowners pay to that paid by investors, has doubled this year due to demand for the securities.