Although many have suggested that the real estate markets have bottomed out, recent data which showed that new construction starts have dipped may suggest otherwise.
Some forces that were driving the housing markets, including low mortgage rates and attractive tax credits for first-time homebuyers, are likely to be overshadowed by increases in foreclosures and a weak labor market.
According to a study conducted by the National Realtors Association, the number of foreclosures in the coming quarter is expected to rise significantly. To make matters worse, of these foreclosures, a large portion are expected to be strategic and planned in nature. Many homeowners are realizing that the negative equity they have in their homes deals a real blow to their personal balance sheets and are deciding to walk away from their obligations. This will result in increased supply of homes on the market.
Secondly, it is just a matter of time before the Fed increases interest rates, which will bump-up mortgage rates and make home loans less appealing. Lastly, there seems to be no relief in the labor markets. The most recent data suggests that companies continue to implement lean measures and are reluctant to hire. Without a job, banks will obviously not issue loans.
Although the real estate sector is in better shape than it was a year ago, an uphill battle seems to lie ahead and President Obama’s call for tougher bank rules doesn’t help.
Some ETFs to keep a close eye on are the following:
- SPDR S&P Homebuilders (XHB), which holds all of the major home builders like Pulte Homes and DR Horton.
- iShares Dow Jones Real Estate (IYR), which primarily tracks REITs and is more orientated towards commercial property than residential.
- ProShares UltraShort Real Estate ETF (SRS), which enables investors to bet against the real estate market.
