Housing Bottom? Try an ETF for that Rash
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s here, the moment we’ve all been waiting for, especially realtors, I’m sure. The experts have declared a “housing bottom”, and yours truly had it placed on notice for quite some time (“Market Moves Higher. For Some Reason”). I promise I am not beating my chest in celebration with such a declaration; I had an extra cup of humility for breakfast this morning. Actually, I think it’s a bit too soon to make such a bold statement, but I sympathize with the rush to be at the head of the class. The experts will later offer their early calls as justification for listening to anything they say in the future, should they be even remotely correct (I think we may be a year or so out, but I’m no expert, by any stretch).
A Moody’s Analytics chief economist succinctly stated “The crash is over”, saying new and existing sales of homes, as well as housing starts “are now off the bottom”. Apparently, 2008 is officially in the books. This is the very same Moody’s that hands out downgrades like bad candy on Halloween, mind you. From another perspective, I enjoy the sentiment from Re/Max CEO, Margaret Kelly, “…the worst is definitely behind us, and a slow, steady recovery is taking hold.” We should all take into account that this is just one executive from one real estate agency firm, but a majority of realtors have been described as having “bullish” outlooks on the market. When it comes to investing, I would rather be late to a party that’s already started, than arrive too early to one that hasn’t begun.
The interesting reaction from this piece of positive outlook is the movement that the homebuilders make when everyone is handing out sunshine and lollipops, instead of sticking “Kick Me” signs on everyone’s backs. Actually, anyone connected to housing gets a nice boost (each of the stocks mentioned in my delightful article above were up at least 1% at closing 4/25/12 – Home Depot, Lowe’s and USG). Up days aside, since April has showered the market with tepid volume (at best), and as we approach the market’s annual “Mayday” sale, proceed with caution if you are trading, rather than investing.
Considering the potential for a rebound and slow, steady surge, take a look at a couple of home builder ETFs, the iShares Dow Jones US Home Construction (NYSEMKT: ITB) and the SPDR S&P Homebuilders ETF (NYSEMKT: XHB). Both are flirting with their 52-week highs, $15.52 for iShares (no relation to Apple), and $21.99 for S&P Homebuilders. A break of these highs could ignite a buying binge, even with the recent robust 6-month move they have enjoyed (from around $15 for S&P Homebuilders, $10.40 for iShares). The S&P Homebuilders is a bit more volatile than the iShares counterpart (probably because they have a 4% holding with USG, which I have owned for a while), but each has a decent stake in Home Depot and Lowe’s, as well as Lennar, which reported a nice quarter recently.
These ETFs will tic to the upside with just about anything construed as positive press, and are worthy of consideration if the experts keep singing their tune, the realtors follow along, and we continue to read upbeat earnings reports from Lennar and more recently, PulteGroup (NYSE: PHM), which reported a 15% increase from last year for new home orders over the same quarter. The positive moves with these stocks (Pulte was up as much as 7% after reporting), will send these ETFs closer to establishing new annual highs.
As long as mortgage rates sit in a holding pattern and everything else keeps moving slow and steady (which, from everything I have heard, wins the race), a relatively safe way to invest in a housing rebound is with an ETF, if owning individual stocks isn’t your cup of tea. Either way, I think they will all be good investments provided we have truly started to move away from the housing bottom.
kmet312 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.