Why I Like Homebuilders This Fall -- But Hate the ETFs

BALTIMORE ( Stockpickr) -- I like homebuilders right now. There, I said it.

Despite the stellar rally homebuiling stocks have pulled off in 2012 and the constant trickle of positive housing data that's been hitting Wall Street so far this year, it still sounds wrong to like homebuilders. Sure, I get it -- investors who owned homebuilding stocks got their teeth knocked in after the housing bubble burst, so a lot of folks are still hesitant to like homebuilding stocks.

Maybe hesitant is an understatement. Let's face it: Most investors were too nervous to buy homebuilders at the start of the year when the housing data started turning, and they're even more nervous now that homebuilding stocks have made such a big run.

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But I think that those are both bad reasons to ignore homebuilders right now. And I think that a few names in particular are worth buying. More on that in a minute.

First, the data is good. Really good.

Housing starts, the number of new homes builders are laying hammer and nail to, are up 21.5% in the last year. And they're up 56% from the bottom back in the middle of 2009. The nationwide S&P/Case-Shiller Home Price Index has been making a turn higher too, ticking higher since the start of the year, when it looks like it too found a bottom.

And if sentiment is looking down for homebuilders, no one has told them lately. The NAHB/Wells Fargo Housing Market index, a datapoint that measures sentiment homebuilders (for business conditions, not share prices), popped up to 37 in August. That's the highest the level has been in five years.

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Why shouldn't sentiment be good, though? While it's clear that a rising tide lifts all ships in the housing market (we've already seen the effects of the falling tide, remember), new homes and pre-existing homes are two very different animals. New homes are just bouncing back at breakneck pace right now. In fact, capacity is basically the biggest constraint that homebuilders are facing in most markets. After paring down their balance sheets after the crash, they don't have the project sites or the skilled labor to build homes fast enough.

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