Hone in on Homebuilders ETFs

XHB, ITB and their components rallied after the Commerce Depart revealed purchases of new, single-family homes increased 16.6% in April month-over-month, the fastest pace since January 2008, reports Jeffrey Sparshott for the Wall Street Journal. The median price of a new home also rose to $321,100 in April, up 9.7% year-over-year, and was the highest level on record.

Even if the Fed proceeds with an interest rate hike, the damage to homebuilders stocks and ETFs could be limited.

In a higher rate environment, home affordability is diminished and there is less incentive for renters to purchase a new home. Additionally, the more expensive mortgage rates may scare away current homeowners who are thinking about upgrading to a bigger, more expensive home.

On the other hand, housing industry experts also argue that higher rates reflect an improving economy and wage growth, which could also help the housing market in the long run.

Still, some market observers are worried that the rising mortgage rates could dissuade borrowers to move into new homes.

SPDR S&P Homebuilders ETF