Fed Policy Keeps Housing ETFs Rising

October 29, 2013

But data sets are pointing south for the sector.

In the past year, homebuilders and related ETFs have benefited from the unprecedented easy-money policy of the Federal Reserve. But with the Fed’s tapering set to go into effect in 2014, some of those double-digit returns may be pared down to single digits or lower.

Year-to-date returns for homebuilding ETFs, a segment with total assets of $3.81 billion, remain solid, after they topped the best-performers’ list in 2012. The housing market is likely to keep performing strongly, though the rate of growth is definitely slowing amid rising borrowing rates and continued difficulty in obtaining home loans for some aspiring home buyers.

According to the S&P/Case-Shiller1 Home Price Indices, the 10-City and 20-City Composites increased 12.8 percent year-over-year through August. Compared to July 2013, the annual growth rates accelerated for both Composites and 14 cities.

The $2.1 billion SPDR S&P Homebuilders ETF (XHB | A-26) has returned 17.79 percent, the $1.8 billion iShares U.S. Home Construction ETF (ITB | A-57) is up 9.66 percent and the $95.6 million PowerShares Dynamic Building & Construction Sector Portfolio ETF (PKB | C-40) has gained 22.04 percent so far this year.

The S&P 500 Index, by comparison, has returned 23.64 percent year-to-date.

XHB and ITB have the majority of their exposure to more homebuilding stocks—26.97 percent and 60.94 percent, respectively. But XHB has a decidedly retail bent focusing on names such as Home Depot, Lowe’s and Beds, Bath & Beyond.

PKB is the only ETF covering the construction & engineering sectors, which together make up 31.01 percent of its portfolio. The ETF’s portfolio include Mohawk Industries, a flooring manufacturer, and Vulcan Materials Company, a producer of construction materials.

ITB_vs.PKB_vs.XHB_YTD_2013

Chart courtesy of StockCharts.com

Sales of new single-family houses in August were at 421,000, which is 7.9 percent above the July rate of 390,000 and 12.6 percent above the August 2012 estimate of 374,000, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development.

September figures for new-home sales were delayed due to the partial federal government shutdown; they will be released on Oct. 29.

 

 

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