With new home sales at a seven-year high and existing home sales at a five-and-a-half year high, the homebuilder sector-related exchange traded fund could be on the verge of breaking out.
Year-to-date, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) rose 9.1% and iShares U.S. Home Construction ETF (NYSEArca: ITB) gained 6.9%.
Technical analyst Todd Gordon, founder of TradingAnalysis, points out that the housing market has a solid foundation and XHB shows great relative strength compared to the broader market, reports Amanda Diaz for CNBC.
“We look to be on the verge of a technical breakout,” Gordon said on CNBC.
XHB has slowly gained momentum this month and currently shows a rising relative strength index – relative strength is a momentum investing technique that compares the performance of a security to that of the overall market, so adherent investors would anticipate that a strengthening security would maintain its trajectory.
“The space looks good technically and I think there’s a pretty good tail wind behind this sector right now,” Gordon added. “We’ll look to play this to the long side.”
Looking at the fundamentals, the housing market is seeing greater demand.
On Monday, the National Association of Realtors revealed that existing U.S. home sales rose 5.1% to an annual rate of 5.35 million units in May, its highest level since November 2009, Reuters reported.
On Tuesday, the Commerce Department stated that new home sales increased 2.2% to an annual rate of 546,000 in May, the best monthly rise in sales since February 2008, reports Josh Mitchell for the Wall Street Journal.
“While we have yet to see whether the recent momentum in housing will sustain, there’s no doubt that we’re in a healthier and more robust market where consumers stand to benefit,” Bill Banfield, Quicken Loans vice president, said. “With inventory slipping a bit, expect to see home construction pick up the slack in the coming months.”
David Seaburg, Cowen and Co.’s head of sales trading, believes that the improving economy and concerns over a rate hike in the foreseeable future have pushed more buyers into the housing market. [Rising Mortgage Yields Could Weigh Down Housing Market, Homebuilder ETFs]
“There’s going to be a lot of people trying to get ahead of this rate hike,” Seaburg said on CNBC. “And more importantly, I think that when jobs do improve, they’ve been very concentrated to the cities. I think that will spread out a lot more and it’s going to spur a lot of demand in suburban-type areas for housing.”
SPDR S&P Homebuilders ETF
For more information on the housing market, visit our homebuilder category.
Max Chen contributed to this article.