Thanks to the taper, concerns have begun to build over the
homebuilders market. This key segment of the economy was doing
quite well, but with the prospect of higher rates, many are worried
that demand for housing will slow down.
After all, higher interest rates push up mortgage rates too, and
with added costs, many can't afford the same level of house that
they once could. This has led many to wait on buying new homes, or
reconsider a housing purchase at this time.
This concern was really starting to hit homebuilder stocks which
were underperforming broad markets over the past month. However,
thanks to some solid data on Tuesday, the space is starting to look
a bit more promising, even with the taper worries (see
Best ETF Strategies for 2014
Earnings in Focus
A key reason for strength in the homebuilding sector was the solid
earnings report from
DR Horton (
. The firm reported
adjusted earnings of 36 cents a share
, beating out the Zacks Consensus Estimate of 30 cents a share.
Furthermore, earnings grew 80% year-over-year, as margins expanded
and the number of homes closed increased.
Home sales figures were especially robust for the company, as this
number increased by 33.6% year-over-year. This news helped to boost
DHI more than 10% on the day, and it also increased sentiment about
the space and that solid earnings were on the way for the rest of
the sector (see
the Guide to Housing ETFs
Beyond this good earnings report, investors also saw some great
news from the all-important 20-city Case-Shiller index. This key
home price benchmark rose 13.7% in November (year-over-year), the
best performance since early 2006, suggesting that it will another
solid time for the housing sector. And although prices dipped when
compared to the previous month, many investors didn't put much
weight into this
as this typically happens
as we approach the winter months.
Due to these factors, ETFs tracking the homebuilding industry
performed quite well in Tuesday trading. Both the funds tracking
this space easily finished ahead of the market's performance for
the session, and both had elevated volume levels too.
SPDR S&P Homebuilders ETF (
gained about 1.9% on the session, beating out the market's
performance for the day by a factor of three. The product holds
about three dozen securities in its basket, and allocates one of
its top three holdings to DHI (see
Is XHB a Better Housing ETF Play?
However, investors should note that XHB isn't a pure play on the
homebuilders, as it allocates a pretty good chunk to firms in the
household appliances and specialty retail segments. For more of a
pure play, investors have the
iShares U.S. Home Construction ETF (
to focus on instead.
This fund allocates nearly two-thirds of its portfolios to
builders, leaving the rest to companies that make materials and
other related services and products. Since it is more focused on
builders, it was the bigger winner in Tuesday trading as it
allocates nearly 10% of its portfolio to DHI pushing it to a 3.7%
gain for the day.
DHI, a pretty important homebuilder, gave investors very solid
earnings. This helped to push the stock up by over 10% on the
session, and it raised investor confidence regarding the sector's
near term outlook (also read
Timber ETFs: The Best Housing Recovery Plays?
This bullishness was further confirmed by the Case Shiller reading,
which showed strong gains in the broad 20-city index for the most
recent data available. With such solid figures in this home price
benchmark, along with great earnings, there is at least some hope
that this sector, and the homebuilder ETFs, can surprise once
again this year, and be star performers even with the threat of the
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D R HORTON INC (DHI): Free Stock Analysis
ISHARS-US HO CO (ITB): ETF Research Reports
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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