The data supporting a definitive upturn in the housing market just keeps rolling in.
True, we’re talking about improvement against some epically bad numbers, and it’s not as if the news is a secret to the market. But we’re still in the early stages of a comeback, meaning plays on homebuilder stocks, exchange-traded funds and investments in allied businesses still could have room to run.
The latest bit of positive news came Tuesday when we learned that new housing starts rose a better-than-expected 3.6% last month to hit a four-year high. Construction permits for new single-family homes likewise hit their highest level since 2008 — or two long years after the housing bubble started to burst.
But wait — there’s more. The National Association of Home Builders’ Housing Market Index, which is highly correlated with single-family housing starts, is back to levels not seen since May 2006. At the same time, the median price for single-family homes rose 10.9% year-over-year last month, the fastest pace seen since January 2006.
And, perhaps best of all, house prices have risen on a national basis for five consecutive months. Yes, they’re still down about 30% from their 2006 peak, but the trend is now firmly headed back up.
Naturally, that has homebuilder stocks and ETFs on a tear, but that doesn’t mean you’ve missed all the upside if prices, starts and sales keep ramping up.
For a do-it-yourself portfolio of homebuilders, here are the top residential construction stocks by market capitalization with their price performance over the last 52 weeks:
- Lennar (NYSE:LEN): +115%
- Toll Brothers (NYSE:TOL): +62%
- NVR (NYSE:NVR): +37%
- PulteGroup (NYSE:PHM): +193%
- D.R. Horton (NYSE:DHI): +68%
- MDC Holdings (NYSE:MDC): +96%
- Ryland Group (NYSE:RYL): +128%
- KB Home (NYSE:KBH): +99%
- Standard Pacific (NYSE:SPF): +114%
For a cheap and diversified portfolio of the above stocks and more, look no farther than the Dow Jones U.S. Home Construction ETF (NYSE:ITB), which also includes home-improvement retailers Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) among its top holdings. ITB is up 93% in the past 52 weeks.
For a different take on diversification in the housing industry, there’s the S&P Homebuilders SPDR ETF (NYSE:XHB), which has gained 63% in the last year. XHB captures homebuilders such as Ryland and PulteGroup, but mostly it focuses on related industries. Top holdings include appliance-maker Whirlpool (NYSE:WHR); USG (NYSE:USG), which makes construction materials; Lennox (NYSE:LII), which makes heating and cooling systems; boilermaker AO Smith (NYSE:AOS); and Mohawk Industries (NYSE:MHK), a producer of carpets and flooring.
Finally, a little farther afield but still poised to benefit from a better housing market are home goods and furnishings retailers, such as Williams-Sonoma (NYSE:WSM), which also owns Pottery Barn; Bed, Bath & Beyond (NASDAQ:BBBY); and Pier 1 Imports (NYSE:PIR).
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
