Building a Housing Recovery

By Ron DeLegge

October 24, 2012 at 08:00 PM

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A resurrection in the homebuilding sector has been one of 2012's brightest investment themes.

Homebuilding ETFs like the iShares Dow Jones U.S. Home Construction ETF (ITB) and SPDR S&P Homebuilders (XHB) soared more than four times the S&P 500's 13.62% return, through the end of the third quarter.

Contracts to buy new homes rose to 373,000 in August compared to 292,000 for the same month in 2011 and confidence among homebuilders has reached a six-year high, according to the National Association of Home Builders/Wells Fargo builder sentiment index.

National home prices are rebounding too.

The S&P/Case-Shiller index during July experienced its largest 12-month advance since the middle of 2010. Sixteen of the 20 cities tracked by the home price indicator showed a year-over-year increase, led by a 17% increase in Phoenix. Atlanta had the largest decline, with prices falling 9.9%.

Economists say record-low mortgage rates and a smaller share of sales of foreclosed properties are contributing to the housing recovery.

Despite these positive trends, approximately 10.8 million Americans or 22.3% of homeowners still have mortgages that are larger than the value of their properties.

"We're at a bottom but I don't think we'll come roaring out of here," Karl Case, co-creator of the home price barometer, told Bloomberg News.

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