Monday, April 4, 2011


RealtyTrac, a leading online marketplace for foreclosure properties, released its Year-End and Q4 2010 U.S. Foreclosure Sales Report. It showed that foreclosure homes accounted for nearly 26% of all U.S. residential sales during the year.
Are foreclosures on a rise? According to Bloomberg, "Total U.S. filings in the fourth quarter fell 8 percent from a year earlier to 799,064. The tally for the three-month period was the lowest since the fourth quarter of 2008."

I live in western Pennsylvania. Around this area we did not participate in the hectic real-estate bubble and therefore have not felt the extreme bubble melt-down.
Areas in California, Phoenix and Las Vegas are bad. Collier County Florida has seen property values that are cut in half. Luckily we have only gone down about 10% - 15%.

Robert I. Toll, Executive Chairman of Toll Brothers Inc. (TOL) said in his
Q1 2011 Earnings Call Transcript the following:
"The territories that are good are good, but there is plenty of territories out there that are big and the uptick is very slight. So, we've got to remain cautious, until we put a few more of quarters behind us and we've got to remain cautious until some of those territories start to kick in."

The take away is that there are some regions that are prospering.
NVR Inc. (NVR) is a regional home builder from this area. The problem with the stock is it has an expensive price tag. It closed at 756.42 on Apr 1st.

It takes five to seven years to build land development from purchase to completion of the project.  Their is a wide spectrum of how companies deal with buying land. Some buy land as they need it and others buy land in advance, or in joint ventures to lock in today's prices. Home builders have now had about 3 years of cheaper land prices. Along with streamlining and other efficiencies they are starting to become profitable.

One year ago Seeking Alpha wrote a great article on home builder etf's. They weighed and compared ITB and XHB merits. The first conclusion is that neither etf is a pure home builder vehicle. ITB's accounted for about 70% of the portfolio and XHB was 35% last year. Looking at the company profiles today, ITB has 56.34% and XHB has reduced to 27.67%.


Barchart homebuilder sector

XHBCompany profile
ITB Company profile

SeekingAlpha Comparison of the two etfs

Foreclosure stats

Other Opposing views

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