Home Depot Leads Homebuilder ETFs, Market Higher

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Homebuilder ETFs led the stock market higher Tuesday as home-improvement giantHome Depot ( HD ) beat earnings expectations and U.S. home prices scored their biggest gains in six years.

In the stock market today ,iShares Dow Jones U.S. Home Construction ( ITB ) vaulted 4% -- among the top five of nonleveraged ETFs. From its 52-week high, ITB has fallen 7%, which is considered a normal pullback in an uptrend.

It carries a healthy IBD Relative Strength Rating of 85 and Accumulation/Distribution Rating of B- on an A-to-E scale. That shows it has outpaced 85% of the stock market the past 12 months and that institutions are heavily buying more shares than selling.

SPDR S&P Homebuilders ( XHB ) spiked 3%.

SPDR S&P 500 ( SPY ) rose 0.68%.

Home Depot Earnings Surprise

Home Depot, one of the top-10 holdings in ITB, surged 6% Tuesday. The country's largest do-it-yourself home-improvement supplier earned 67 cents a share in Q4 vs. 64 cents estimated by analysts polled by First Call. Earnings climbed 34% year over year while sales grew 14% to $18.25 billion, topping expectations of $17.72 billion. Home Depot also said Tuesday it's buying back $17 billion of its shares and increasing its quarterly dividend by 34%.

Housing Trends

The Standard & Poor's Case Shiller composite index of 20 metropolitan areas surged 6.8% in December year over year. It rose 2% on a seasonally adjusted basis in Q4 and ended 2012 with the largest annual gain since 2006.

Nationally, home prices climbed 7.3% year over year in the fourth quarter of 2012. Home prices soared a whopping 23% year over year in Phoenix, while ebbing 0.5% in New York.

New York's foreclosure rate, at 6.34% in Q4, far exceeds the national rate of 3.74%, according to the Mortgage Bankers Association.

The three catalysts that have restored home prices will continue to support prices in 2013, say Patrick Newport and Stephanie Karol, economists at IHS Global Insight:

1. The economy is growing and adding jobs.

2. Inventories are dropping because builders are not putting up homes fast enough to meet underlying demand -- which mostly consists of replacement demand and demand from newly formed households.

3. Interest rates are extremely low.

Rising home values are laying the foundation for more economic growth. Consumers are spending more as they feel wealthier, thanks to rising home values -- most people's largest asset.

Higher home prices have lifted 1.4 million underwater homeowners -- those who owed more than their home was worth -- above the water line, benefiting homeowners and lenders.

Improving home values are boosting property-tax revenues for cash-strapped cities and states.

Homebuilders, construction workers, and furniture and appliance makers are all benefiting from the rebound.

"Strengthening in home prices is a plus for growth through various channels, including increased consumer spending because of wealth and confidence effects, increased incentive to buy before prices go up some more, and increased incentive to lend because of less chance of mortgages turning delinquent," Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., wrote in a client note.

Winter Rise

New-home sales vaulted 15.6% in January, month over month, to an annual rate of 437,000 -- eclipsing expectations of 380,000.

New-home inventories of 4.1 months' supply have dropped sharply from their high of 12.2 months in 2009.

Median prices ticked up 2.1% year over year in January after spiking 14.2% in December and 14.1% in November.

"New-home sales are extremely volatile and subject to large revisions, limiting the information value of any one report," O'Sullivan wrote. "Even so, today's data are clearly consistent with an improving trend. Until today, new-home sales had shown less improvement than seemed consistent with other related data, including the homebuilder survey and starts and permits."

Among homebuilders,Hovnanian Enterprises ( HOV ) spiked 11%,Standard Pacific (SPF) 9% andKB Home (KBH) 7% on the news.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: HD , HOV , ITB , SPY , XHB

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