ETFs For A Real Estate Boom

February 28, 2013

As anyone who is currently trying to buy or sell a home probably knows, the real estate market is starting to recover.

While my anecdotal experience is limited to the San Francisco Bay Area, where bidding wars escalate the prices of already-expensive homes into even-more-expensive homes, and listing prices seem to have jumped more than 10 percent in just the last few months, the data outside my world support this theory as well.

This week, we saw a host of data supporting a real estate recovery. The Federal Housing Finance Agency House Price Index jumped 0.6 percent in December; the S&P/Case-Shiller Home Price Index jumped 0.9 percent in December, fueling a year-over-year gain of 6.9 percent; and new home sales jumped 15.6 percent in January.

Given the relatively few number of people who want to move during the holiday season, I’d guess that the numbers are likely to improve even further for January and going forward.

Further, mortgage rates are starting to rise as more buyers are entering the market.

The average 30-year fixed rate mortgage grew from 3.47 percent in December to 3.53 percent in January, according to the FHFA Monthly Interest Rate Survey. Rates are still rising, up to 3.56 percent for the week ending Feb. 21, according to Bloomberg.

Now, if you agree that the real estate market is only going up, there are many ETFs for that play.

The iShares FTSE NAREIT Residential Plus Capped ETF (NYSEArca: REZ) attempts to provide focused exposure to residential real estate in particular, while funds like the First Trust S&P REIT ETF (NYSEArca: FRI) and the Vanguard REIT ETF (NYSEArca: VNQ) provide broad exposure to real estate in general.

For the truly convinced, there are also two leveraged ETFs: the ProShares Ultra Real Estate ETF (NYSEArca: URE), which provides double exposure to the daily returns of the Dow Jones U.S. Real Estate Index, and the Direxion Daily Real Estate Bull 3x ETF (NYSEArca: DRN), which provides triple exposure to the MSCI US REIT Index.

The leveraged ETFs will take a little more caution to hold, since you’ll need to rebalance your holdings to maintain the target amount of leverage. But if real estate really takes off, there’s no denying that those leveraged ETFs are poised to post great returns.

The total return charts of the five ETFs mentioned above make a great case for the leveraged plays.


Real Estate ETF Returns


Over the past year, the 3x leveraged DRN returned 46 percent, the 2x leveraged URE returned 33 percent and the unleveraged REZ, VNQ and FRI each returned around 16 percent.

As I cautioned above, the leveraged products reset their exposure daily, so returns over longer periods of time can differ from the returns of leveraged products that don’t reset daily.

But that doesn’t mean they can’t be used as long-term holdings—they just require a little more attention, which is always a good idea for investments in leveraged products anyway!

At the time this article was written, the author held no positions in the securities mentioned. Contact Carolyn Hill at [email protected].


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