as part of our
One aspect of the
housing market recovery
that no one can quite agree on is its staying power.
In fact, some pundits believe the burst of this so-called
Housing Bubble of 2013 is imminent. It makes for great headlines
and head-turns, but not much sense.
For proof, let's go back in history to August 2006, when
homeowners basked in the glory of a 132% rise in home prices over
an 11-year span - and, oddly enough, every Tom, Dick and Harriet
could afford and qualify to buy at these pie-in-the-sky prices.
The Housing Bubble: Then and Now
Financial institutions - and the government - took turns playing
"Let's Make a Deal." (Behind the curtain: No money down! Under the
box: 0% interest for five years! In the sealed envelope: Bad
credit? No income? No problem!)
To add to the insanity, the Fed lowered rates
, from 6.5% to 1.75%, between 2001 and 2004. This was to ensure the
American Dream stayed alive and well. But it wasn't long before the
nightmare on Wall Street (and every street in the country) played
You know all the gory details… By the first quarter of 2009,
home prices had fallen by more than 32% from their 2006 peak, and
they continued to slide (until now).
Everything is different this time around, though…
- Inventories today are at record lows, due in part to fewer
foreclosures and homeowners stuck with little or no equity in
their homes. Yet back then, inventory was sky-high, and
homeowners plowed through equity quicker than you could say
- Today, banks are Scrooge-like, demanding down payments
exceeding 20% - even with squeaky clean credit. Back then, buyers
often borrowed without any down payment, and banks were more than
willing to accommodate them with introductory teaser rates… and
- Today, the ratio of home prices to income is relatively low.
At the end of 2012, house payments represented just 12.6% of
monthly income. (Remember, in the pre-bubble period of 1985 to
1999, mortgages took 19.9% of homeowners' monthly incomes.)
While CoreLogic estimates that home prices have increased 12.1%
year-over-year, it's not exactly fodder for celebration - or bubble
labeling, for that matter. As Louis Basenese mentioned in this
month's issue of
"Higher prices alone… promise to help keep the bubble in check… [As
this will] encourage more homeowners to list their properties."
And even if Bernanke pulls the trigger on interest rates, he
will move so slowly and cautiously that you may not even
That Speak Volumes
In the end, the housing market is poised to continue its upward
momentum unabated. And three ETFs in particular clearly illustrate
the upward trend in housing.
iShares Dow Jones U.S. Home Construction Fund
) has a 62% exposure to the largest homebuilders in the market. The
ETF boasts one-year returns of 33.7% and recently moved back above
its 200-day moving average.
Then there's the
SPDR S&P Homebuilders ETF
XHB has less exposure to homebuilders than ITB and invests in
companies like Bed Bath & Beyond and La-Z-Boy. XHB has shot up
38.6% in the past 12 months and 10.7% year-to-date. This one is
trading north of both its long- and short-term moving averages.
And lastly we have the
PowerShares KBW High Dividend Yield Financial
), which focuses on the financial sector and banks. I know, that
dirty, "too big to fail" word again. No worries, though. These
days, KBWD holds mostly REITs or other companies in the mortgage
financing arena, like
American Capital Agency
Annaly Capital Management
). It boasts an 8.13% annual yield and 11.8% year-to-date gain. It,
too, is trending above the 200- and 50-day moving averages.
Bottom line: Though housing stocks may ebb and flow in the
coming months, it appears that the long-term trend will remain up.
And those who took (or take) cover under presumably falling skies
may learn this particular history lesson the hard way.