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ETFs to Gain on Upbeat U.S. Housing Starts in July
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Another round of upbeat data from the U.S. housing market signals that the sector is gaining the momentum back. According to the U.S. Housing and Urban Development and Commerce Department, total housing starts rose 22.6% (the biggest gain since October 2016) to a seasonally-adjusted annual rate of 1.50 million units in July per a National Association of Home Builders’ (NAHB) press release. The figure is above the June’s revised figure of 1.22 million units. The reading surpassed analysts’ expectations of 1.24 million units, per a Reuters’ poll.
Building permits, a construction pointer for the coming months, jumped 18.8% to an annualized rate of 1.50 million units in July.
There was an 8.2% increase in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 940,000 units in July. Moreover, permits to construct single-family homes climbed 17% to 983,000 units in the month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment surged 58.4% to 556,000 units last month. Also, there was a 22.5% rise in permits to a rate of 512,000 units in July for building multi-family homes.
According to National Association of Home Builders (“NAHB”) Chief Economist Robert Dietz “the market is being buoyed by historically low interest rates, a focus on the importance of housing and a shift to the suburbs as more buyers are seeking homes in suburban communities, exurbs and more affordable low density markets,” stated in the NAHB press release.
The recently-released data on the U.S. builder confidence was upbeat as well. Per the monthly NAHB/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly-built single-family homes surged to 78 points in August from 72 in July, 58 in June, 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading, rising to 73, per a Reuters’ poll. Going on, August’s reading was the highest in the 35-year long history of the index, matching the December 1998 record. Notably, any reading above 50 is considered positive and signals at an improving confidence.
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe support from the Federal Reserve is helping keep rates at such low levels. Also, rising uncertainty related to the coronavirus outbreak is driving demand for safe-haven assets like U.S. Treasuries (per the Reuters article). This, in turn, will help drive consumer spending and demand in the housing market.
Meanwhile, rising lumber prices, which have more than doubled since mid-April, can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and fears of a second wave of coronavirus outbreak will continue to impede momentum of the U.S. housing market.
In this regard, NAHB Chairman Chuck Fowke said that “strong builder confidence and heavy buyer traffic point to further production gains in the near term, but the more than 110 percent jump in lumber prices since mid-April is adding approximately $14,000 to the cost of each new single-family home,” noted in the NAHB press release.
Homebuilder ETFs That Might Shine
In such a scenario, here are a few housing ETFs that might gain from the improving housing sector scenario:
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $2.14 billion, it holds a basket of 44 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Wall Street's Best 100 Days Since 1933: ETF Winners).
A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket. It has an AUM of $1.16 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: all the Materials ETFs here).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 31 stocks in its basket, each accounting for less than a 5.43% share. It has amassed assets worth $127.8 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: ETFs to Shine on Positive U.S. New Home Sales Data).
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ETFs to Gain on Upbeat U.S. Housing Starts in July
Another round of upbeat data from the U.S. housing market signals that the sector is gaining the momentum back. According to the U.S. Housing and Urban Development and Commerce Department, total housing starts rose 22.6% (the biggest gain since October 2016) to a seasonally-adjusted annual rate of 1.50 million units in July per a National Association of Home Builders’ (NAHB) press release. The figure is above the June’s revised figure of 1.22 million units. The reading surpassed analysts’ expectations of 1.24 million units, per a Reuters’ poll.
Building permits, a construction pointer for the coming months, jumped 18.8% to an annualized rate of 1.50 million units in July.
There was an 8.2% increase in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 940,000 units in July. Moreover, permits to construct single-family homes climbed 17% to 983,000 units in the month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment surged 58.4% to 556,000 units last month. Also, there was a 22.5% rise in permits to a rate of 512,000 units in July for building multi-family homes.
According to National Association of Home Builders (“NAHB”) Chief Economist Robert Dietz “the market is being buoyed by historically low interest rates, a focus on the importance of housing and a shift to the suburbs as more buyers are seeking homes in suburban communities, exurbs and more affordable low density markets,” stated in the NAHB press release.
The recently-released data on the U.S. builder confidence was upbeat as well. Per the monthly NAHB/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly-built single-family homes surged to 78 points in August from 72 in July, 58 in June, 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading, rising to 73, per a Reuters’ poll. Going on, August’s reading was the highest in the 35-year long history of the index, matching the December 1998 record. Notably, any reading above 50 is considered positive and signals at an improving confidence.
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe support from the Federal Reserve is helping keep rates at such low levels. Also, rising uncertainty related to the coronavirus outbreak is driving demand for safe-haven assets like U.S. Treasuries (per the Reuters article). This, in turn, will help drive consumer spending and demand in the housing market.
Meanwhile, rising lumber prices, which have more than doubled since mid-April, can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and fears of a second wave of coronavirus outbreak will continue to impede momentum of the U.S. housing market.
In this regard, NAHB Chairman Chuck Fowke said that “strong builder confidence and heavy buyer traffic point to further production gains in the near term, but the more than 110 percent jump in lumber prices since mid-April is adding approximately $14,000 to the cost of each new single-family home,” noted in the NAHB press release.
Homebuilder ETFs That Might Shine
In such a scenario, here are a few housing ETFs that might gain from the improving housing sector scenario:
iShares U.S. Home Construction ETF (ITB - Free Report)
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $2.14 billion, it holds a basket of 44 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Wall Street's Best 100 Days Since 1933: ETF Winners).
SPDR S&P Homebuilders ETF (XHB - Free Report)
A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket. It has an AUM of $1.16 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: all the Materials ETFs here).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 31 stocks in its basket, each accounting for less than a 5.43% share. It has amassed assets worth $127.8 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: ETFs to Shine on Positive U.S. New Home Sales Data).
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>