How to Track the Housing Marketing by ETFs

Some of the ETFs, such as IYR, URE, DRN, etc. can be used to track the housing market.  If you want to bet on the appreciation of housing prices, trading those ETFs in real estate sectors might be a good leverage! Be advised, they might not reflect the tax deduction benefit as you invest in the properties.

Chart 1 illustrates the negative relationship between interest rates and IYR (iShares Dow Jones US Real Estate). This enables investors to seek the returns that correlate largely to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Real Estate Index.  Therefore, IYR is treated as the leading indicator of housing markets, which correlates with interest rates. Please be mindful that the share price of IRY would differ from the actual housing price due to time lag.

 
Chart 1 CBOE Interest Rate 10-Year T-No vs. IYR from 4/25/2013 to 7/25/2013.
Source: Line Graph Outline form Yahoo Finance.  Actual data compiled by Authors.

 

 

Forbes joined other media outlets to declare October 2011 as the bottom of the housing market.  Chart 2 tracked the performance of IYR which corresponded with the housing market.  In May 2013, the IYR reached the top. We’ll wait to see how it correlates in the future with the housing market.

 

 

Chart2 Ishares Dow Jones US Real Estate (IYR) from 1/1/2011 to 8/5/2013.

Source: Line Graph Outline form Yahoo Finance.  Actual data compiled by Authors.

 

           According to the Yahoo Financial news released by Reuters on 7/29/2013: “Contracts to purchase previously owned U.S. homes fell in June, retreating from a more than six-year high, and suggesting rising mortgage rates were starting to dampen home sales”. Movoto Real Estate’s August report brought up the same issue. This report indicated that the surplus inventory in the housing market played a catch up game. Thus the listing price for home sales did not increase between June and July.  The rising inventory, in addition to rising interest rates, kept the prices from advancing at the same pace in the past several months.

Nevertheless, it is still too early to tell if the home sales form a trend. Usually it takes three months in a row to confirm the pattern of an economic indicator.  The third time is the charm.