Congress Gives Homebuilding Sector a Break
When Congress is giving away money, get in line.
That philosophy heavily benefited the real estate sector in the past few trading sessions.
This week, a bill to ameliorate the real estate recession made progress in the Senate. The aim is to slow the pace of foreclosures and forestall bankruptcies among homebuilders.
For property owners at risk of losing their home, $10 billion would be made available for refinancing. Also, the
Federal Housing Administration
loan limit would be adjusted upward to $550,000. To convince potential home buyers not to wait for lower prices, $7,000 tax credits would be given for buying foreclosed properties.
Another incentive to own instead of rent would be a $500 single or $1,000 joint-filing standard tax deduction for property-tax payers. To reduce the over-supply of foreclosed homes for sale, $4 billion may be granted to buy and maintain these properties.
As much as $6 billion in bailout cash would go to homebuilders. These companies would be allowed to "carry-back" current losses against the prior four years of profits. Previous taxes paid could be refunded.
The average real estate fund we track climbed 6.25% in the five trading days ending April 3.
Topping the best-performer list is the
Ultra Real Estate ProShares
(URE) - Get ProShares Ultra Real Estate Report
, 200% positively leveraged to the Dow Jones U.S. Real Estate Index. The nearly 90% concentration of REITs in this fund rallied on the potential bailout plan.
In second place is a closed-end fund that pays monthly dividends toward its objective of high current income from holding REIT securities. The
Dividend Capital Realty Income Allocation Fund
(DCA)
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gained 12.50% for the period.
The next three spots are all held by the homebuilders, whose Washington lobbyists are proving to be worth every penny spent.
iShares Dow Jones US Home Construction Index Fund
(ITB) - Get iShares U.S. Home Construction ETF Report
, up 12.36%,
SPDR S&P Homebuilders ETF
(XHB) - Get SPDR Homebuilders ETF Report
, up 11.98%, and the
FocusShares ISE Homebuilders Index Fund
( SAW), up 11.07%, all shared in the celebration.
The homebuilder stocks themselves also fared well:
Beazer Homes USA
(BZH) - Get Beazer Homes USA Inc. Report
popped 26.56%,
Standard Pacific
(SPF)
jumped 23.42%,
Lennar
(LEN) - Get Lennar Corporation Class A Report
added 21.40% and
Meritage Homes
(MTH) - Get Meritage Homes Corporation Report
advanced 20.98%.
Best Performing Real Estate FundsRanked by returns for the week ending April 3
Fund | Ticker | Rating | Fund Type | 1 Week Total Return |
Ultra Real Estate ProShares | URE | E- | ETF | 14.06% |
Dividend Capital Realty Income Allocation Fund | DCA | E- | Closed-End | 12.50% |
iShares Dow Jones US Home Construction Index Fund | ITB | E- | ETF | 12.36% |
SPDR S&P Homebuilders ETF | XHB | E- | ETF | 11.98% |
FocusShares ISE Homebuilders Index Fund | SAW | U | ETF | 11.07% |
Claymore/AlphaShares China Real Estate ETF | TAO | U | ETF | 11.05% |
ProFunds Real Estate UltraSector ProFund | REPSX | E- | Open-End | 10.45% |
RMR Asia Pacific Real Estate Fund | RAP | E- | Closed-End | 10.25% |
iShares FTSE EPRA/NAREIT Asia Index Fund | IFAS | U | ETF | 8.98% |
Cohen & Steers Worldwide Realty Income Fund Inc | RWF | E- | Closed-End | 8.36% |
Source: Bloomberg. For an explanation of our ratings, click here
.
The only two real estate funds to fall this week were the inverse funds shorting the stocks of the Dow Jones U.S. Real Estate Index. The 200% leveraged
UltraShort Real Estate ProShares
(SRS) - Get ProShares UltraShort Real Estate Report
lost twice as much value as the unleveraged
ProFunds Short Real Estate ProFund
(SRPIX) - Get ProFunds Short Real Estate ProFund Investor Class Report
.
Worst-Performing Real Estate FundsRanked by returns for the week ending April 3
Fund | Ticker | Rating | Fund Type | 1 Week Total Return |
UltraShort Real Estate ProShares | SRS | C | ETF | -13.44% |
ProFunds Short Real Estate ProFund | SRPIX | U | Open-End | -6.81% |
Adelante Shares RE Growth Exchange-Traded Fund | AGV | U | ETF | 0.86% |
iShares FTSE EPRA/NAREIT Europe Index Fund | IFEU | U | ETF | 1.02% |
Fidelity Real Estate Income Fund | FRIFX | D+ | Open-End | 1.14% |
Cohen & Steers Total Return Realty Fund Inc | RFI | C- | Closed-End | 1.39% |
Adelante Shares RE Shelter Exchange-Traded Fund | AQS | U | ETF | 1.53% |
Cohen & Steers European Realty Shares Inc | EURAX | U | Open-End | 1.75% |
ING European Real Estate Fund | IAERX | U | Open-End | 2.02% |
Adelante Shares RE Value Exchange-Traded Fund | AVU | U | ETF | 2.13% |
Source: Bloomberg. For an explanation of our ratings, click here
.
While the extension of a Congressional olive branch to homeowners and real estate companies mired in quicksand could benefit many people, the attention reveals the extent of the sector woes. Any gain in securities based on potential legislation can just as easily be reversed if the bill gets hung up. Caution is still warranted.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.
