The Case for Real Estate — and 3 Ways to Play
This post is part of a series written by ETF Trends editor Tom Lydon, special for CNBC.com.
Real estate might be a four-letter word to some investors. After all, commercial real estate was hit by the collapse of a number of businesses and a glut of vacant office space.
Residential real estate is only now beginning to recover from a bubble that burst in 2007. But it’s time for investors to consider the adage that the hardest-hit sectors have the most room for growth after a recession.
While real estate investment trusts (REITs) have rallied about 90% since the March lows, the sector is still faced with a heavy debt load. Many analysts believe, however, that if the sector’s heavy debt load can be rolled over, REIT shares should emerge in good condition.
- Commercial real estate can be played with the SPDR Dow Jones REIT, which is a diversified play on the sector. The ETF holds health care, office space, malls, hotels and more.
In the residential real estate sector, homebuilder confidence has risen to its highest level since June and new home sales were up 9.6 percent in July. Home prices also notched their first quarterly increase in three years in the second quarter. On the other hand, there’s still a need for some caution as the sector works through the glut of inventory it’s built up.
Residential real estate can be accessed in a few ways, including:
- iShares DJ U.S. Home Construction, which holds homebuilding companies and is a good way to play the new home segment of the market.
- MacroShares U.S. Housing Up, which is a unique product that tracks the Case-Shiller Composite-10, an index of home prices in 10 major cities. The fund is issued in pairs with the MacroShares U.S. Housing Down.
The money in both funds is held in a trust and is transferred back and forth according to the index’s direction. For example, if the index moves up $1, then $3 from the down trust is moved into the up trust; the reverse happens when the index moves down $1.
More on Housing/Real Estate:
- Home Prices Could Fall by Another 25%: Whitney
- Mortgage Rates Edge Lower in Week - Freddie Mac
Tom Lydon is the editor of ETF Trends and author of iMoney: Profitable ETF Strategies for Every Investor.