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Homebuilder ETFs To Buy On Upbeat Data

After being stalled in the first quarter, the housing market started to show signs of a spring rebound. This is especially true given that new home construction and building permits rebounded in April, indicating that the U.S. economy is again gaining steam (read: Are Housing ETFs Ready to Ride on Spring Selling Season? ). U.S. housing starts climbed 6.6% to a seasonally adjusted annual rate of 1.17 million homes and much higher than the Reuters expectation of 1.13 million. The uptick in construction activity was broad-based with increases of 3.3% in single-family houses, and 10.7% in multi-family houses, including apartments and condominiums. Meanwhile, new applications for building permits, a construction bellwether for the coming months, rose 3.6% to an annual rate of 1.12 million after declining for three months. The data released early this week showed that homebuilder confidence remained unchanged for the fourth consecutive month in May as indicated by the National Association of Home Builders/Wells Fargo sentiment index. Builders’ outlook for sales over the next six months jumped to the highest level since December. This reflects that the housing market is still strengthening, though the pace of growth has slowed down (read: 5 Sector ETFs to Play Now ). This is because historically low interest rates and ongoing job creation will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, slower and gradual rate hikes will not impede the growth prospect of the sector, at least in the near term. Given this, investors might want to look at the three homebuilder ETFs – the iShares U.S. Home Construction ETF (NYSEARCA: ITB ) , the SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) and the PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) – for their exposure to the sector. These funds have a solid Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting some outperformance in the months to come. Further, the residential and commercial building industry has a solid Zacks Rank in the top 34%. While the upbeat data failed to garner interest in the sector this week, investors could start piling up these products in their portfolio, especially if the upcoming home sales report due to release on May 24 also shows strength. In particular, PKB is outperforming with gains of 5.8% so far in the year while ITB and XHB have shed 2.5% and 3.5%, respectively. Investors seeking large profits in a short span could also take a look at the leveraged plays – the ProShares Ultra Homebuilders & Supplies ETF (NYSEARCA: HBU ) and the Direxion Daily Homebuilders & Supplies Bull 3x Shares ETF (NYSEARCA: NAIL ) . HBU provides double exposure while NAIL offers triple exposure to the index of ITB. However, the fund is relatively new in the space and has low trading activity, making it a riskier and a high-cost choice. Link to the original post on Zacks.com

Homebuilding ETFs In Focus Following U.S. Home Resale Data

The recent home resale data from National Association of Realtors (“NAR”) indicated that the U.S. homebuilding sector still faces weaknesses. The data showed a 3.4% decline in existing home sales in the U.S. to an annual rate of 5.36 million units in October from 5.55 million units in September. The decline is blamed on the shortage of properties that pushed up prices and discouraged buyers of existing homes. Per NAR, the number of unsold homes for October ebbed 2.3% over the previous month to 2.14 million units. Unsold homes inventory was down 4.5% from the prior year. The tight inventory caused median home price to increase 5.8% from the year-ago level to $219,600, marking the 44th straight month of a year-over-year rise (read: Homebuilder Stocks and ETFs Gain on Solid Data ). Last week, U.S. Commerce Department also revealed disappointing housing starts data for October. Groundbreaking dipped 11% to a seasonally adjusted annual pace of 1.06 million units during the month, the lowest level in the past 7 months. The decline was attributed to slowdown in the construction of multi-family homes. Groundbreaking data for the largest housing market segment indicated a 2.4% fall in single-family home projects for October. Much of the decline has been contributed by a 6.9% downfall in groundbreaking activity in the South, the most active region for the homebuilding sector. Meanwhile, housing starts for the multi-family segment slumped 25.1% to the annual pace of 338,000 units. Notably, new single-family home sales in the U.S. tumbled 11.5% to a seasonally adjusted annual rate of 468,000 units in September from August. This has led to 5.8 months’ supply of new homes in September, the highest since July last year. The U.S. homebuilding sector already faces a major threat from the strong possibility of an interest rate hike by Fed in December. A higher interest rate environment heavily weighs on the affordability of homes. On the other hand, it raises the mortgage rates that could fend off existing homeowners from upgrading to luxury and expensive homes (read: Is it the Right Time for Homebuilder ETFs? ). However, some have predicted that the decline in housing activities during October could be short-lived, particularly when the labor market is improving and the broader market is recovering. Further, industry experts argue that Fed’s lift-off could send a positive signal about the economy and boost consumer confidence. ETFs in Focus The depressing homebuilding reports for October turns our attention to the ETFs tracking the performance of the sector. Although the two major homebuilding ETFs (discussed below) delivered good performance both in the one-month and year-to-date time frames, investors should remain cautious about them given the adverse developments and the threat of an impending rate hike by the Fed (read: Two Homebuilder ETFs & Stocks Set to Soar ). iShares U.S. Home Construction ETF (NYSEARCA: ITB ) This most popular homebuilding fund provides a pure play on the home construction sector by tracking the Dow Jones US Select Home Builders Index. It holds a basket of 41 stocks, with double-digit allocation going to both D.R. Horton (NYSE: DHI ) and Lennar Corp. (NYSE: LEN ). The product has amassed more than $2 billion in its asset base and trades in heavy volume of more than 3.7 million shares per day, on average. The ETF charges 43 bps in annual fees, and has added about 2.9% in the past one month and 10.4% in the year-to-date period (as of November 24, 2015). It has a Zacks ETF Rank #2 (Buy) with a High risk outlook. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) XHB follows the S&P Homebuilders Select Industry Index, representing the homebuilding sub-industry portion of the S&P Total Markets Index. The fund holds 36 securities in its basket, with none accounting for more than 3.87% of the assets. It has garnered about $1.9 billion in its asset base and exchanges a heavy volume of roughly 3.4 million shares per day, on average. XHB charges 35 bps in annual fees and returned 0.6% in the last one-month and 6.9% so far this year. It has a Zacks ETF Rank #2 with a High risk outlook. Original Post

Homebuilding On Sustained Growth: ETFs In Focus

After a sizzling summer, the U.S. housing market showed signs of losing some momentum, indicating that the China-led global growth worries might have spoiled the industry’s growth last month. This is especially true as new home construction dropped 3% in August to a seasonally adjusted annual rate of 1.13 million homes, much higher than the market expectation of 1.16 million. Despite the fall, housing starts remained above the one-million-unit mark for the fifth straight month. This suggests that recovery is still on the way and will keep coming. The positive sentiments were driven by growing demand for homes, accelerating job growth, rising wages, affordable mortgage rates, and increasing consumer confidence. Additionally, new applications for building permits, a construction bellwether for the coming months, rebounded last month as it rose 3.5% to an annual rate of 1.17 million after falling 15.5% in July. Another data showed that homebuilder confidence jumped to the highest level since November 2005 as indicated by the National Association of Homebuilders/Wells Fargo Sentiment Index that rose one point in September. The optimism is also reflected in number of homebuilder stocks and ETFs. In particular, the iShares U.S. Home Construction ETF (NYSEARCA: ITB ) and the SPDR Homebuilders ETF (NYSEARCA: XHB ) gained about 0.8% each on Thursday’s trading session despite the disappointing housing starts data. This was followed by a modest 0.04% gain for the PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) . From a year-to-date look, ITB, XHB and PKB have respectively risen 10%, 9.4% and 14.3%, and are easily outpacing the broad sector and broad market funds. XLB lost nearly 10.3% while SPY shed 1.74% in the same time frame. All the three ETFs have a decent Zacks ETF Rank of 3 or “Hold” rating with a High risk outlook. The outperformance in the homebuilding space is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 38%. Further, S&P Capital IQ expects homebuilding revenues to increase 15% this year and 11% in the next, thanks to encouraging industry fundamentals and an improving U.S. economy. Investors seeking large profits in a short span could also take a look at the leveraged plays – the ProShares Ultra Homebuilders & Supplies ETF (NYSEARCA: HBU ) and the Direxion Daily Homebuilders & Supplies Bull 3x Shares ETF (NYSEARCA: NAIL ) . HBU provides double exposure while NAIL offers triple exposure to the index of ITB. However, the fund is relatively new in the space and has low trading activity, making it a riskier and a high-cost choice. Link to the original post on Zacks.com Share this article with a colleague