The shares of bellwether home builders have enjoyed a strong rally in 2015, thanks to an improved job market, robust consumer confidence, moderating home prices and near-zero interest rates.
Home prices, of course, are no where near the bubbly 2006 levels.
But home prices have steadily rebounded from their 2009 lows and buyers are coming back into the market.
Home Prices
Why all the bullishness?
Sanjoy Ghosh, Chief Investment Officer of online investments marketplace Covestor.com, painted an optimistic outlook for the U.S. housing market in a recent article for USA Today.
“Mortgage applications, both for new home purchases and refinancing, are on the rise this year. Home prices have improved in many, if not most, areas, as well— albeit slowly. The S&P/Case-Shiller U.S. National Home Price Index recorded a 4.7% annual gain in November 2014, slightly above the 4.6% level recorded one month earlier.”
On top of that, President Obama recently lowered the mortgage insurance rates on Federal Housing Administration loans.
Down payments
Meanwhile, Fannie Mae (FNMA) and Freddie Mac (FMCC) have reduced down-payment requirements on loans they buy.
The share performance of major home builder stocks such as PulteGroup (PHM), D. R. Horton (DHI), Lennar Corporation (LEN) and Toll Brothers, Inc. (TOL) clearly reflect the return of animal spirits to the residential housing market.
ETFs
Earnings performance is backing up these well-performing stocks.
Bellwether housing stocks such as the PulteGroup (PHM) and D. R. Horton (DHI) reported double-digit revenue average earnings forecast of analysts tracked by Zacks Investment Research.
Looking for a cost-effective way to get maximum exposure to the housing rebound?
The blue chip homebuilding stocks mentioned above are well represented in ETFs like the iShares U.S. Home Construction ETF (ITB) and PowerShares Dynamic Building & Construction Fund (PKB).
Covestor manager and Sizemore Capital founder Charles Sizemore, who oversees three portfolios on the site, suggests the SPDR S&P Homebuilders ETF (XHB).
He also likes Mortgage REITs such as the iShares Mortgage Real Estate Capped ETF (REM) or the Market Vectors Mortgage REIT Income ETF (MORT).
Both ETFs borrow lower-rate, short-term money to buy higher-rate, longer-term mortgage securities.
Takeaway
It has been a long time in coming, but the housing market appears to have found its footing.
As the key spring selling season approaches, buyers seem ready to take advantage of low interest rates for mortgage loans while they last.
For now, all this spells good times for housing stocks and related ETFs and mREITs.
Photo Credit: Mark Moz via Flickr Creative Commons
DISCLAIMER: The investments discussed are held in client accounts as of January 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
