ETF Trends
ETF Trends

Homebuilder exchange traded funds were set to end the week on a high note after a report Friday that U.S. housing starts rose nearly 6% in July.

The iShares US Home Construction (NYSEArca: ITB) and SPDR S&P Homebuilders (NYSEArca: XHB) were both up more than 1% after their notable turnarounds on Thursday. Homebuilder industry confidence is at its highest levels in nearly eight years, according to a report released Thursday. [Homebuilder ETFs Climb]

The housing ETFs saw a jump in trading volume during Thursday’s rally. In fact, ITB saw its highest volume ever with over 22 million shares trading hands.

Still, rising mortgage rates remain a concern for the housing market and homebuilder stocks.

“I think we are looking at a situation that some air is coming out of the housing recovery given the higher mortgage rates,” said Michael Hanson, senior economist with Bank of America Merrill Lynch, in a Reuters report. “At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago.”

From a technical standpoint, this could simply be an oversold bounce for the builder ETFs. Also, ITB has seen the 50-day moving average cross below the 200-day moving average.

Homebuilders came into Thursday’s session as “one of the most oversold groups,” said Jonathan Krinsky, a technical analyst at Miller Tabak, in a MarketWatch report. He said even with a spike higher in rates, builders managed to make “red-to-green reversals.” The NAHB news helped, he said, but it also means a “short-term reversal could be in place.”

iShares US Home Construction

Full disclosure: Tom Lydon’s clients own XHB.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.