US house prices continue to rise; positive for homebuilder ETFs

Aug 29th, 2012 | By | Category: Equities

Data through June 2012, released yesterday by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, a leading measure of US home prices, showed that national and city home price composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010.

US house prices continue to rise; positive for homebuilder ETFs

“We seem to be witnessing exactly what we needed for a sustained recovery,” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.

“Home prices gained in the second quarter,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “In this month’s report all three composites and all 20 cities improved both in June and through the entire second quarter of 2012.  All 20 cities and both monthly Composites rose for the second consecutive month.  It would have been a third consecutive month had we not seen home prices fall in Detroit back in April.”

Blitzer added: “We seem to be witnessing exactly what we needed for a sustained recovery: monthly increases coupled with improving annual rates of change.  The market may have finally turned around.”

As of the second quarter of 2012, average home prices across the United States are back at their early 2003 levels.  At the end of the second quarter of 2012, the National Index was up 6.9% over the first quarter of 2012 and 1.2% above the second quarter of 2011.

Commenting on the data, Jennifer Lee, Senior Economist, BMO Capital Markets, said: “This report is very good news, and shows that prices are getting support from the pick-up in demand for housing as well as fewer distressed homes on the market.  It also represents a much-needed boost given the release of today’s consumer confidence index for August, which shows a drop of 4.8 points.”

A look at individual areas provided further encouragement, according to Ms. Lee.  “Eighteen of the 20 metro areas saw home prices rise in June, the most since 2006. On a year-over-year-basis, 13 areas are now able to say that home prices have grown, including Phoenix, Miami and Minneapolis.”

Ms. Lee noted that US housing prices are likely to stabilise further in 2013, with demand improving on firmer job growth and easier lending standards.

This represents yet more good news for US homebuilders and related companies, as we reported on earlier this week following the release of Department of Commerce home sales data. [See US homebuilder ETFs boom as house prices and sales rebound]

For investors looking to capitalise on continued improvement in the US housing market, the following NYSE-listed exchange-traded funds (ETFs) provide targeted exposure to US homebuilders and related construction and home improvement industries:

iShares Dow Jones US Home Construction Index ETF (ITB)
The iShares Dow Jones US Home Construction Index ETF tracks the Dow Jones US Select Home Construction Index. This index represents the Home Construction, Furnishings, Home Improvement Retailers and Building Materials and Fixtures sub-sectors. Companies classified as Furnishings, Home Improvement Retailers and Building Materials and Fixtures will be restricted to an aggregate maximum weight of 40% of the index, thereby giving more weight to home builders. The fund currently comprises 27 holdings, the top five of which are all home builders: Lennar (9.9%), DR Horton (9.7%), PulteGroup (9.5%), Toll Brothers (9.3%) and NVR (7.9%). NYSE Arca. Expense ratio 0.47%.

SPDR S&P Homebuilders ETF (XHB)
The SPDR S&P Homebuilders ETF tracks the S&P Homebuilders Select Industry Index. This index represents the homebuilding sub-industry portion of the S&P Total Markets Index, and includes Homebuilding, Building Products, Home Furnishings, Home Improvement Retail, Home furnishing Retail and Household Appliances. The fund currently comprises 37 holdings, the top five of which are: PulteGroup (4.3%), Lumber Liquidators (4.0%), Standard Pacific Homes (3.8%), USG (3.7%) and Toll Brothers (3.6%). NYSE Arca. Expense ratio 0.35%.

PowerShares Dynamic Building & Construction Portfolio ETF (PKB)
The PowerShares Dynamic Building & Construction Portfolio is based on the Dynamic Building & Construction Intellidex Index. The index is comprised of stocks of US building and construction companies. These are companies that are primarily engaged in providing construction and related engineering services for building and re-modelling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports. Index weights are assigned based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action, and value. The fund comprises 30 holdings, the top five of which are: Home Deport (5.1%), Vulcan Materials (5.0%), DR Horton (4.9%), Ingersoll-Rand (4.9%) and Quanta Services (4.7%). NYSE Arca. Expense ratio 0.63%.

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