Looking to Invest in the Housing Market? Try a Housing ETF

The housing ETF has picked up a lot of momentum in the market lately. More and more investors are getting involved with this type of investment. There are hundreds of ETFs that you could potentially invest in, but housing is one of the more interesting sectors. Here are the basics of the housing ETF and how it works. 

Housing ETF Basics

The housing ETF is a little different than other similar types of ETFs. With this type of ETF, you are basically betting on whether you think housing prices will rise or fall in the near future. The pricing is based on a housing index from several different areas in the country. Unlike similar commodity ETFs, the ETF does not actually have shares in a bunch of houses out there. It keeps cash and Treasury securities in the fund and moves them around based on the index. 

Investment Potential

Housing is one area that has always traditionally rebounded well. It tends to go in cycles. After a booming real estate period, there tends to be a bit of a bust. Therefore, when the market is down, you know it will come back at some point. You just have to determine when to bet on growth.

Housing Bonds

Housing bonds are a type of bond for which the payments received by the investor come from the properties' mortgage payments. This type of bond has the ability to provide regular income for the investor. However, this type of bond is subject to interest rate risk in both directions. If interest rates in the market increase, there is a chance that the homeowners may not be able to continue to afford making their payments. At the same time, if interest rates in the market decrease, the homeowners may decide to refinance their mortgages, and the investor will not be able to continue receiving interest.

Secondary Mortgage Market

The secondary mortgage market is a market in which mortgages originated by lenders are bought and sold. Many times, mortgage lenders will simply originate the mortgage and then package it with other loans. At that point, the lender will sell this package of mortgages to large institutional investors like mutual funds. The secondary mortgage market is very large, and there are many investors involved in it. When a mortgage is sold to another company, this means that the new company will take over the process of servicing the mortgage and collecting the payments. 

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