Home-building and real estate ETFs rise after Case-Shiller data

Posted on December 28, 2016

Exchange-traded funds tied to the real estate and home-building sectors rose on Tuesday, as data showed that the price of houses in the U.S. stayed near all-time highs in October.

According to the S&P Case-Shiller index, home prices rose 0.6% in October, having risen 5.1% over the past year. The cost of housing has surged in part because of rising demand triggered by an improved economy, as well as a shortage of homes available for sale.

The SPDR S&P Homebuilders ETF XHB, -0.54%  rose 0.5%, though it remains down by about 0.1% for the year. Among specific names, D.R. Horton Inc. DHI, -1.09% rose 0.9% while Toll Brothers Inc. TOL, -0.85%  added 0.8%. Beazer Homes USA Inc.BZH, -0.07% —which is one of the biggest gainers in the space, up 19% in 2016—rose 0.2% on the day.

The iShares U.S. Real Estate ETF IYR, -0.49%  rose 0.1% on the day while the iShares Residential Real Estate Capped ETF REZ, -0.61% rose 0.5% on the day; the real estate funs id up 1.1% for 2016 while the residential fund is down 3.2%.

Among other real-estate funds, the Vanguard Real Estate Investment Trust (REIT) ETF VNQ, -0.43%  rose 0.2%, bringing its 2016 rise to 1.6%. The iShares Cohen & Steers REIT ICF, -0.56%  gained 0.4%, while the SPDR Dow Jones REIT RWR, -0.51% added 0.2%. The Real Estate Select Sector SPDR Fund XLRE, -0.56%  rose 0.4%.

Despite the strong recent data, there are concerns about the housing sector going into 2017, with the U.S. Federal Reserve expected to raise interest rates three times over the year.

“Higher rates slow loan demand in the intermediate term and dampen real-estate values,” KBW wrote in a note to clients on Tuesday. The firm “also expects refinancing to slow meaningfully and for the market to move towards adjustable rate mortgages as home affordability deteriorates.”