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NEW YORK ( TheStreet) -- U.S. existing-home sales grew 7.2% in July from June, with new-home sales adding 9.6% for the same period, according to the National Association of Realtors. Buyers are coming out of the woodwork to compete for low-priced foreclosure sales.

The ensuing rally pushed the average real estate fund we track up 4.1% for the week ending Thursday, Aug. 27. This gain excludes the inverse funds that sell short the real estate stocks.

First-time home buyer credits and low interest rates are keeping the real estate recovery on track. The S&P/Case-Shiller home-price index advanced 2.9% during the second quarter. Prospective buyers and real estate investors are betting the U.S. real estate market has hit its low.

Encouraging data boosted two exchange traded funds that invest in homebuyers. The iShares Dow Jones U.S. Home Construction Index Fund ( ITB) and the SPDR S&P Homebuilders ETF ( XHB) were among the 10 best performing real estate funds, rising 7.2% and 6.8%, respectively.

The iShares ETF's top performing holding is Ethan Allen Interiors ( ETH), which has gained 19% on cost cutting measures. Insulation giant Owens Corning ( OC) added 9% on the strength of its roofing division and its pledge to cut spending.

Homebuilders also had a strong week, with M/I Homes ( MHO) up 13%, Standard Pacific ( SPF) up 12%, D.R. Horton ( DHI) up 11%, and Lennar ( LEN) up 9%.

The best performing fund, the Direxion Daily Real Estate Bull 3X Shares ETF ( DRN), is 300% leveraged to the daily performance of the MSCI US REIT Index. The fund rose 15% in the five trading days under review. Gains of 44% in Gramercy Capital ( GKK), 18% in Strategic Hotels & Resorts ( BEE) and 17% in FelCor Lodging Trust ( FCH) were among real estate investment trust movers.

Best Performing Real Estate Funds for
the Week Ending Thursday Aug. 27
Fund (Ticker) Rating Fund Type 1 Wk Tot'l Return
Direxion Daily Real Estate Bull 3x Shares (DRN) U ETF 14.84%
Cohen & Steers Worldwide Realty Income Fund Inc (RWF) E Closed-End 9.93%
ProShares Ultra Real Estate (URE) E- ETF 8.28%
DWS RREEF Real Estate Fund Inc (SRQ) E Closed-End 7.46%
iShares Dow Jones US Home Construction Index Fund (ITB) E+ ETF 7.18%
iShares FTSE NAREIT Retail Capped Index Fund (RTL) E+ ETF 6.85%
SPDR S&P Homebuilders ETF (XHB) D- ETF 6.77%
DWS RREEF Real Estate Fund II Inc (SRO) E Closed-End 6.67%
ProFunds Real Estate UltraSector ProFund (REPSX) E- Open-End 6.29%
Cohen & Steers Quality Income Realty Fund Inc (RQI) E Closed-End 6.20%
Source: Source: TheStreet.com Ratings & Bloomberg

Three inverse funds that short the sector with 100%, 200% and 300% negative leverage were among the losing funds. The ProFunds Short Real Estate ProFund ( SRPIX) declined 4.2%, while the ProShares UltraShort Real Estate ETF ( SRS) fell 7.8% and the Direxion Daily Real Estate Bear 3x Shares ( DRV) slid 13%.

The Claymore/AlphaShares China Real Estate ETF ( TAO) was the only other losing fund, off 1.5%. The fund is pulling back as investors sell holdings in the Hong Kong and mainland Chinese property markets, which have performed well this year.

For more information, check out an explanation of our ratings.

-- Reported by Kevin Baker in Jupiter, Fla..

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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.

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