This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETFs for the Fed's Effect on Housing

NEW YORK (ETF Expert) -- Take a quick walk with me down Flashback Lane. The year is 2004. Homes, by most measures, are no longer affordable. Yet home prices did not peak until two years later in the early months of 2006.

The stock market, a forward-looking beast, tends to recognize bad (and good) trends roughly six months in advance. Not surprisingly then, one of the premier home builders, Toll Brothers (TOL), catapulted roughly 200% from $20 per share to $60 per share between the start of the bubble in 2004 and mid-2005. Toll Brothers then spent the next six months depreciating 50% in value as it dropped back down to $30 per share. It made it to $20 and below by the end of the real-estate collapse in late 2008.

Back in the present, homes are once again stretching the boundaries of affordability. With a little help from John Carney of CNBC and the folks at the St. Louis Federal Reserve bank, one can see that housing has crossed below its long-term trend on affordability for the first time since 2004.

Does that mean homes will depreciate in value tomorrow? Not likely. Real estate didn't hit its maximum price capacity until 2006 and the bubble didn't really pop until 2007. Does that mean that home builder stocks are about to get crushed? Not necessarily. Toll Brothers ran up 200% from the onset of a downtrend in affordability to six months prior to the peak in home prices.

Indeed, the SPDR S&P Homebuilder ETF (XHB) appears to have found solid support near its 200-day moving average. Moreover, there appears to have been an ample number of tests near $28 per share for XHB; in every instance, XHB has bounced higher.



Clearly, the Federal Reserve's upcoming decision on the future of monetary policy on Sept. 18 is crucial for stock investors. The recent upswing in funds like SPDR S&P Homebuilder ETF and iShares DJ Home Construction (ITB), as well as a broader-based seven-day winning streak for the S&P 500, suggests that most expect the Fed to do little more than "save face" with a token amount of tapering; the Fed is still expected to provide as much bond-buying with electronically created dollars (a.k.a. quantitative easing) at the same rate as "QE2" from 2010-11.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,086.63 -26.91 -0.16%
S&P 500 1,987.01 +3.48 0.18%
NASDAQ 4,473.6970 +17.6810 0.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs