SPDR S&P Homebuilders (ETF) (AMEX:XHB)

HooliganJ (99.30) Submitted: 2/18/2010 2:08:00 PM : Start Price: $15.45 XHB Score: -11.26

My negative opinion of this ETF may be a bit sophomoric, but this is a summary of why I give XHB the down check.

The ETF is called the S&P homebuilders ETF but a huge chunk of their holdings are not home builders such as Ethan Alan, Home Depot, Legget & Platt, Lowes, Mohawk Ind. And Sherman Williams. Related industries, retailers? Yeah sure, why not throw in a sod harvesting company, telephone company, garden gnome manufacturer and maybe a utility company?

Any housing market recovery will have a lot of latency built in. Specifically, if and when the conditions are right to start building houses on a large scale again if will take quite a while for these companies to respond and start making the big money again.

Now for the inflammatory part of the pitch, I believe that the housing market is in for a protracted period of stagnation in housing prices and new home building. Lending standards are tightening (relative to 04/05 standard practices), housing prices have briskly gone up at an unsustainable rate for too long and there is a glut of new houses on the market. I hesitate to evoke the words sub-prime and alt-A but we are not done feeling the negative effects of bad mortgage lending practices as well.

If you are trying to make CAPS points or real money hoping that you found the bottom of the housing sector decline I think you are coming to the dance, early by a few years.