Homebuilder ETFs Soaring After Surge In New Home Sales

by on April 23, 2010 | ETFs Mentioned:

One of the hardest hit sectors in the recent recession was homebuilding, which was pushed to the edge of collapse as construction ground to a halt and credit markets froze. That combination sent many homebuilders reeling and saw  shares plunge over the past year and a half. Despite a broad market recovery as of late, sales of new homes had been falling for the past four months, as many consumers waited for more definitive signs of a recovery and indication that real job creation had begun.

However, this downward trend appears to be reversing, as a Commerce Department report earlier today said that new home sales surged 26.9% last month, the largest advance since April 1963. This sudden surge put new home sales on a 411,000 annual pace, sharply higher than what analysts had expected; the consensus was for sales to increase to a 330,000 rate. In addition, inventories of unsold homes fell by 2.1% to 228,000, the lowest in almost 40 years. Further adding to the good news, the median sales price of a new home was up as well to $214,000 an increase of 4.3% compared to a year earlier, suggesting that home prices may have bottomed out in some markets for the time being (see Five ETFs For A Housing Recovery).

Homebuilder ETFs

Currently, there are two ETF options available for investors who are looking to make a play on homebuilders, whether it be an anticipated continuation of this positive trend to go along with the market recovery, or a sharp reversal once the tax credit for new home purchases expires later this year (for a more in-depth discussion of the homebuilders, see our recent article comparing the ETFs Head-To-Head).

SPDR Homebuilders ETF (XHB)

XHB follows the S&P Homebuilders Select Industry Index, which tracks the sub-industry portion of the S&P Total Markets Index. This benchmark is an equal weighted market cap index that currently contains 26 securities. XHB was up more than 1.6% in mid-day trading on the news; some of its largest holdings such as USG Corp (4.9%), Pier 1 Imports (4.5%), and Owens Corning (4.4%) saw their shares post volatile trading days. USG posted a gain of close to 6.5%, Pier 1 sunk close to 3%, and Owens Corning jumped nearly 2% (this shift to the upside is especially apparent when one looks at the candlestick chart for XHB).

iShares Dow Jones U.S. Home Construction Index Fund (ITB)

ITB tracks the Dow Jones U.S. Select Home Construction Index, which tracks 27 firms engaged in businesses related to home construction. Its two top holdings, NVR (8.4%) and Pulte Group (8.4%) were both up with NVR posting a half a percent gain and Pulte soaring higher by 5% in early trading.  This helped push ITB higher by close to 2.1%, which outpaced its less concentrated counterpart, XHB. The fund is up close to 30% this year and almost 9% over the past week, one of the best performing equity ETFs in the time period (see more ITB fundamentals).

For more ETF news, sign up for our free ETF newsletter (where you would have seen that XHB was one of our Three ETFs To Watch This Week).

Disclosure: No positions at time of writing.