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3 Homebuilding ETFs to Buy on Strong Recovery in Housing

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Strong gains in housing starts and building permits last month indicates that the housing market is back on track to finish the year on a positive note. While building permits registered the biggest monthly gains last month since June, housing starts recovered strongly in November after declining to a seven-month low in October. Also, single-family housing starts grew at a multi-year high pace last month.

Housing Data in Details

On Wednesday, the U.S. Department of Commerce reported that building permits surged 11% from October to a seasonally adjusted annual rate of 1,289,000 last month, hitting a five-month high. It was also higher than the consensus estimate of 1,155,000 and represented a 19.5% gain from the year-ago level. Moreover, October's rate was revised upward from 1,150,000 to 1,161,000. While building permits for single-family homes rose 1.1% in November to its highest level of 723,000 since Dec 2007, the same for multi-family buildings jumped 26.9% last month (read: Homebuilding on Sustained Growth: ETFs in Focus ).

Separately, it was reported that housing starts soared 10.5% last month from October to a seasonally adjusted annual rate of 1,173,000, beating the consensus estimate of 1,143,000. This was preceded by a plunge of 11% in October, which was the lowest level in the past 7 months. Also, November marked the eighth consecutive month in which housing starts registered an annual pace of above 1 million, longest stretch since 2007. It is speculated that the segment is on track to post an average pace of 1.1 million units in 2015, reaching the highest level since 2007.

Meanwhile, single-family home projects that represent the biggest proportion of the market jumped 7.6% in November to 768,000, reaching its highest level since Jan 2008. Strong gains in regions including the South, Northeast and West primarily contributed to the surge. Moreover, housing starts for the multi-family segment jumped 16.4% to the annual pace of 405,000 units in November, following a 25.1% slump in October (read: Homebuilding ETFs in Focus Following U.S. Home Resale Data ).

Factors Boosting Housing

A favorable consumer spending scenario and strong recovery played an important role over the past one year to boost the housing market. Like most part of 2015, the U.S. labor market latched on to strong job gains in November. While the jobs number came in better-than-expected at 211,000 for November, the unemployment rate remained at a seven-year low level of 5%. The monthly tally for the last three months now averages at 218K. The labor market also witnessed steady growth in wages (read: Surprise ETF Winners Post Job Data ).

Separately, healthy consumer spending emerged as one of the main catalysts over the past few quarters in boosting the U.S. economy. A plunge in oil prices , low inflation and interest rates helped consumers to spend more over the past one-year period. Though the Fed increased its short-term borrowing rate to a range of 0.25% to 0.50% yesterday, it said the U.S. economy will continue to do well and a slight increase in rate was appropriate. The Fed's move to raise rates pointed to "solid" consumer spending, a rebound in the housing market and strong business fixed investment. The recovery in the housing market is expected to remain on track despite rate-hike led increase in borrowing costs (read: Fed Rate Hike Wait May End Today: ETFs to Gain & Lose ).

3 ETFs to Buy

Given the bright outlook and strong rebound in housing data, we have highlighted 3 favorably ranked homebuilder ETFs that are poised to gain from this positive scenario. These ETFs also registered strong gains yesterday following the release of solid housing data.

iShares US Home Construction ( ITB )

This most popular homebuilding fund provides a pure play to the home construction sector by tracking the Dow Jones US Select Home Builders Index. It holds a basket of 41 stocks and has an expense ratio of 0.43%. The product has amassed nearly $2 billion in its asset base and trades in heavy volume of more than 3.7 million shares per day on average. The ETF gained 2.4% yesterday and 7% in the year-to-date period (as of December 16, 2015). It has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

SPDR S&P Homebuilders ETF ( XHB )

XHB follows the S&P Homebuilders Select Industry Index, representing the homebuilding sub-industry portion of the S&P Total Markets Index. The fund holds 38 securities in its basket with none accounting for more than 3.97% of the assets. The fund has garnered about $1.8 billion in its asset base and exchanges a heavy volume of roughly 3.4 million shares per day on average. The fund charges 35 bps in annual fees and returned 2.2% yesterday and 3.2% so far this year. It has a Zacks ETF Rank #2 with a High risk outlook.

PowerSharesDynamic Building& Construction ETF ( PKB )

This seeks to track performance of the Dynamic Building & Construction Intellidex Index. It holds a basket of 30 stocks and has an expense ratio of 0.63%. The product has amassed nearly $65.8 million in its asset base and trades in light volume of around 18,000 million shares per day on average. The ETF gained 1.5% yesterday and 12.6% in the year-to-date frame. It has a Zacks ETF Rank #2 with a High risk outlook.

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ISHARS-US HO CO (ITB): ETF Research Reports

SPDR-SP HOMEBLD (XHB): ETF Research Reports

PWRSH-DYN BLDG (PKB): ETF Research Reports

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


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

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