ITB iShares US Home Construction ETF

The Building Permits and Housing Starts data for the month of February is slated to release later today. This would mark another important trading day for the homebuilder stocks and ETFs such as the SPDR S&P Homebuilders ETF (XHB) and the iShares Dow Jones US Home Construction ETF (ITB).

This data is particularly important for the homebuilder ETFs as it highlights the fundamental picture of the broad homebuilding industry. Not surprisingly, the two homebuilding ETFs show huge price variations on the day of this release, suggesting that this could be another important day for these increasingly popular ETFs (read Homebuilder ETFs: Can the Rally Continue?).

For example, ITB and XHB slumped 5.74% and 4.45% respectively following the dismal housing starts number that was released last month. Furthermore, the month before that, ITB rallied around 2.7% and XHB surged by 1.85% when the data was released for the previous month, suggesting high levels of volatility can happen based on this data point.

Not only this, but the building permits and housing starts data have had a long historical trend of being a major market moving catalyst for stocks and ETFs from the homebuilding space. And considering this historical trend, there is no reason to believe why the case should be anything different this time around (read Homebuilder ETFs After Housing Data).

Homebuilder ETFs in Focus

The two homebuilding ETFs have had an outstanding performance last fiscal year with tremendous gains. This was primarily due to the turnaround in the housing market which was fuelled by the increasing consumer sentiment and spending, marked improvement in the employment numbers, as well as low interest rates which saw a surge in mortgage lending activities.

However, last month’s dismal housing starts number caused the ETFs to register massive single day losses. Nevertheless, this was not entirely bad news for the ETFs as it had made valuations more reasonable and marked a good entry point for investors seeking to get in on this important story.

 

Not only has this brought these ETFs back on their winning tracks, but it has also ruled out the fact that the Bull Run for the homebuilder ETFs was over. Thus the dip (red encircled portion) was clearly a buying time for many investors before the trend resumed higher (green circle).

Still, it should be noted by investors that ITB is much more concentrated on the homebuilders space than its SPRD counterpart XHB. This is because ITB allocates more than 81% of its assets in the homebuilders space which is excluding retail businesses like home furnishing and improvements (see Top Ranked Homebuilder ETF in Focus: XHB).

On the other hand, XHB is less concentrated on the pureplay homebuilding space. Thus we see that any development on the housing starts number affects ITB more than XHB.

Bottom Line

There is no doubt that the Housing Starts number is one of the most important pieces of information for the homebuilder ETFs. Therefore investors and traders looking for large single day movements in this space would keep a close eye on this data point.

Lastly, both of these ETFs are rated as ‘Buys’ in terms of the Zacks ETF Rank (see the Zacks ETF Rank Guide). ITB has a Zacks ETF Rank of 1 or ‘Strong Buy’ and XHB has a Zacks ETF rank of 2 or ‘Buy’. Therefore we expect these ETFs to continue doing well in the near future, and especially if the data release today is positive.

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ISHARS-DJ HO CO (ITB): ETF Research Reports
 
SPDR-SP HOMEBLD (XHB): ETF Research Reports
 
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