Homebuilders ETFs Rally On Robust Home Sales Data

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Exchange traded funds cheered the robust housing sales increases and falling oil prices Wednesday. It suggests the housing market has taken a turn for the better and that consumers will have more money to spend, thanks to relief at the pump.

IShares Dow Jones U.S. Home Construction ( ITB ) surged 3% to 20.07 -- the highest price in more than four years. It's rallied a whopping 65% year to date and 103% the past year -- the most of any sector in the world. By contrast the S&P 500 climbed 17.94% year to date and 22.58% the past year.

ITB sports the highest IBD Relative Strength and Accumulation-Distribution Ratings combination -- 95 and A -- of any nonleveraged ETF. That means its price action outpaces 95% of the market and institutions are heavily buying shares.

SPDR S&P Homebuilders ( XHB ) rose 2.12% to 25.75 -- a five-year high. It carries robust 92 RS and A- Acc-Dis Ratings. It's surged 48.52% year to date and 74.56% in the past 12 months.

Better-Than-Expected Existing Home Sales

Existing home sales rose 7.8% month over month in August to an annual rate of 4.82 million, National Association of Realtors reported Wednesday. The rate surpassed expectations of a 2% increase to 4.56 million and marked the highest level since May 2010. It's 12.6% higher than the 4.28 million rate for all of last year, according to High Frequency Economics. Distressed home sales made up about 22% of August sales, down from 31% in the year-ago month. Inventories of homes for sale fell 18.2% year over year and median prices improved 9.5% year over year.

Higher prices reflect rising sales of traditional homes and fewer foreclosures and short-sales, noted Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

New Construction Hits Four-Year High

In August, housing starts flew to an annualized rate of 750,000, up 29% year over year, the Commerce Department reported. It was the highest since the fall of 2008 but lower than the 767,000 analysts projected.

"Housing is clearly in recovery mode," O'Sullivan wrote.

The market faces four major head winds, wrote Russ Koesterich, global chief investment strategist at iShares, in his iShares blog:

"1. Housing starts are still barely half of their 50-year average.

"2. Slower population growth and household formation are likely to lead to less demand.

"3. There is still a huge shadow inventory of unsold homes: properties that are in foreclosure, but have not yet been sold; and properties that owners are holding off on selling until prices improve.

"4. Consumer debt levels are still high by historic standards, so people may be reluctant to take on more debt, even if mortgage rates are low."

This means home prices have probably bottomed but will remain flat for several years, which is what happened in other countries with housing bubbles, Koesterich concluded.

The NAHB/Wells Fargo Housing Market Index, measuring home-builder confidence, rose three points in September to 40 -- the highest reading since June 2006, the National Association of Home Builders reported Tuesday. It marked the fifth straight improvement in builder confidence. Expected sales over the next six months climbed above 50 for the first time since February 2007. Builder sentiment improved in all-four major U.S. regions -- the West, South, Northeast and Midwest.

"This report confirms the tides in the housing market have turned," economists at Ned Davis Research wrote in a report.

Oil Down, Markets Up

Crude oil futures plunged to a six-week low after Saudi Arabia -- the world's largest oil exporter -- said it would take action to control prices, igniting speculation that it will boost supply. What's more, the Energy Information Administration reported that U.S. stocks climbed by 8.5 million barrels over the prior week -- topping expectations. Stocks are 2.7% higher than the year-ago period. Weekly production rose 8.5% year over year.

"There is clearly plenty of oil available to supply the needs of a global economy that is growing at a relatively anemic pace," Ed Yardeni, president of Yardeni Research, wrote in his daily client note. "Oil prices should be falling, but for the war risk premium. Odds are they will continue to roller coaster."

United States Oil ( USO ), tracking West Texas Intermediate, gapped down 4% to 34.17. It's broken below both the 50- and 200-day moving averages, which is very bearish.

Energy Select Sector SPDR ( XLE ), tracking the oil producers in the S&P 500, fell 0.89%.

SPDR S&P 500 ( SPY ) ticked up 0.27%.

PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial stocks on the Nasdaq, added 0.31%.

SPDR Dow Jones Industrial Average (DIA) also tacked on 0.31%.

Year to date, SPY has rallied 18%, above the market's long-term average.

"With 20/20 hindsight, it appears that valuations were overly depressed at the beginning of the year and that confidence in policymakers to address Europe's problems was too low," Bob Doll, senior adviser at BlackRock wrote in his weekly investment commentary. "Additionally, it seems that many investors were positioned too defensively and had some catching up to do."

Whether the rally can continue depends on how well economic stimulus programs are working and a soft economic landing in China, he wrote. "Given that valuations are not extended, markets do have room to make further gains."

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: ITB , SPY , USO , XHB , XLE

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