Homebuilders Slumping

July 10, 2007

SAN DIEGO (ETFguide.com) - After several years of outsized gains, homebuilding stocks are slumping.

Slow job growth and falling home prices throughout the U.S. are putting a damper on the appetite for residential real estate.

Then too, there's the problem of consumers that are financially tapped out.

According to the American Bankers Association the level of late payments, including on home equity loans, has reached a peak not seen since 2001. Declining home values means homeowners don't have as much equity to cash out by selling their homes or refinancing.

Reflecting this pessimism are the SPDR S&P Homebuilders (Ticker: XHB), which have lost 16.98 percent since the beginning of the year. The underlying index has 21 stocks composed of companies that construct new homes and are closely tied to the U.S. housing sector. Top holdings include D R Horton, Home Depot, Lennar, Pulte Homes, and Sherwin Williams. The fund charges an annual expense ratio of 0.35 percent.

After starting the year on a high note, even commercial real estate seems to have lost its luster.

The Vanguard REIT ETF (Ticker: VNQ) was down 2.91 percent through early July. The fund is composed of companies involved in office, industrial, retail and property management. Among top holdings are Boston Properties, General Growth Properties, and Public Storage. The expense ratio is currently 0.12 percent, which is the lowest among similar REIT ETFs.

Less concentrated on residential properties is the PowerShares Dynamic Building & Construction Portfolio (Ticker: PKB). As of early July the fund was ahead by a stunning 26.51 percent. The index contains 30 stocks and is weighted heaviest towards industrials and material suppliers. Top holdings in the fund include American Standard, Caterpillar, Fluor, Terex, and Vulcan Materials.

Another one of the few bright spots in real estate has been with international properties. Launched late last year, the SPDR DJ Wilshire International Real Estate ETF (Ticker: RWX) has notched a year-to-date gain of 5.94 percent. Australia, Japan, and the United Kingdom account for over 56 percent of the fund's country representation.