Two ETFs to Play the Housing Recovery

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The first half of the last decade saw an explosive rise in US real estate prices, driven largely by a speculative bubble. These bubbles tend to pop, and pop they did, leading to the subprime mortgage crisis in 2008 and the subsequent crash of the US housing market. Reverberations of this crash were felt around the world, and equity markets also underwent a significant correction. Today, the macro-economic data coming out of the US is showing signs of recovery, and it may be the case that real estate prices have bottomed out. For those who believe this trend will continue, there are several ways to participate.

Signs of Recovery

While the figures being released at the moment benefit from coming from severely depressed levels, many of these numbers are genuinely encouraging. In the past year, new home sales are up 15.3%. In November, Americans bought houses at the fastest pace in 2.5 years, with new home sales up 4.4% compared to October. The recovery of the housing market is supported among other factors by record low interest rates on mortgages, and a steady improvement of the job market. According to the well-known Case-Shiller Home Price Indices, US home prices rose roughly 4.3% in the last 12 months, which is another sign that the market is picking up steam. How does one play this development? I will present two options here.

SPDR Homebuilders ETF

The SPDR Homebuilders ETF (NYSEMKT: XHB) is perhaps one of the most popular ways of playing the housing recovery. So popular in fact, that the ETF is up over 60% in the last year. As the ETF is approaching its 52-week high, this is perhaps a moment to be cautious. However, US homebuilders stand to benefit most from the recovery, which explains the almost frantic rally of this sector. Tracking the S&P Homebuilders Select Industry Index, the fund yields 0.94% and has a reasonable expense ratio of 0.35%. Its largest holdings are Lowe’s and Whirlpool. The recent rally has put the average valuation of the fund at a somewhat pricey 23.16x earnings.


The SPDR Wilshire REIT ETF (NYSEMKT: RWR) tracks the performance of US real estate investment trusts through following the Dow Jones US Select REIT index. While not matching the performance of homebuilders, the fund is up a handsome 14% in the past year. It offers a nice 3.02% yield and has an expense ratio of only 0.25. The ETF is heavily weighted towards Simon Property Group (NYSE: SPG), which makes up 11.7% of the fund’s holdings. This stock has a fairly high valuation at 32.34x earnings and 8.53 to book. REITs, like homebuilders, stand to gain significantly from a rise in housing prices, and the fund may be able to deliver strong performance in 2013. However, the ETF has experienced a notable outflow in the last month, which may be a cautionary sign.

Bottom Line

It appears as if the recovery of the US housing market is finally gaining traction. Recent figures suggest that more Americans are buying homes, and that prices are rising. ETFs are a relatively easy way to play this trend. Homebuilders as well as REITs stand to gain from these recent developments, and I have highlighted two of them in this article. However, the situation looks somewhat overbought at the moment, and investors should as always practice due diligence in appraising the available options.

DUJames has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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