XHB, ITB, PKB -- Homebuilders' ETF

As we cautioned our readers again and again (see past posting), the housing slump indeed turned out to be more pronounced than those in the "soft landing" camp had expected. A government report late last week showed housing starts plunged 14.6% in October to the lowest level in more than six years. Building permits fell 6.3%, the largest percentage decline in seven years. Home builders have seen orders plunge and many buyers are canceling contracts. Cancellations are being driven by fears of price declines and because buyers are experiencing difficulty selling their own homes.

Within a few months, the sector would start looking attractive for investment. We believe it would still be a risky affair to put money in any individual stock in this sector. It's a good idea to keep a watch on the following exchange traded funds (ETF) which provide good diversification.

SPDR Homebuilders (XHB)
iShares Dow Jones U.S. Home Construction (ITB)
PowerShares Dynamic Building & Construction Portfolio (PKB)

The expense ratio of XHB is the lowest 0.35%, whereas that for ITB is 0.48% and for PKB the ratio is 0.60%. XHB is also an equally-weighted fund holding almost equal stake of 5% for each of 20 stocks in its portfolio (for more on equally-weighted fund, read our past posting). All these ETFs are down by 30-40% from their 52 week high after the free-fall the whole sector experienced during April-August.