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 11 times, 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 out.
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 “bankruptcy.”
- 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 dire consequences.
- 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 WSD Insider, “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 notice.
Three ETFs 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.
The iShares Dow Jones U.S. Home Construction Fund (ITB) 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). 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 (KBWD), 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 (AGNC), BGC Partners (BGCP) and Annaly Capital Management (NLY). 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.
Good investing,
Karen Canella
The post Unequivocal Proof That the Housing Uptrend Has Staying Power appeared first on | Wall Street Daily.
Article By WallStreetDaily.com
Original Article: Unequivocal Proof That the Housing Uptrend Has Staying Power
