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Will ETFs Suffer as US Homebuilder Confidence Slips in January?
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The U.S. housing sector feels the pain of rising inflation levels and persistent supply-chain disturbances amid strengthening demand. This has led to the home builder sentiment breaking the streak of a four-month increase. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped by a point to 83 in January this year from 84 in December, 83 in November, 80 in October and 30 in April (the lowest since June 2012). However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index remained steady at 90 in January. The metric measuring traffic of prospective buyers also saw a two-point decline to 69. Sales expectations for the next six months also slipped by a couple of points to 83, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast declined by a point to 73. However, the South and Western Index rose by one point, respectively, to 88. The Midwest increased by a point to 75, per the release.
Going by the press release, NAHB Chairman Chuck Fowke reportedly said that “Higher material costs and lack of availability are adding weeks to typical single-family construction times. NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020. Policymakers need to take action to fix supply chains. Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector delivered an impressive performance earlier despite the tough pandemic times. However, rising softwood lumber, material and labor costs remained a major hurdle for homebuilders. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs.
The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting the affordability as prices of existing and new homes are soaring.
Meanwhile, the housing market steadily benefited from low borrowing costs and changing demographic preferences of a large chunk of the population as people increasingly looked for work-from-home-friendly properties. Individuals were shifting from city centers to suburbs and other low-density areas, looking for spacious accommodations for home offices and schools, per sources.
However, the Federal Reserve has also hinted at taking aggressive measures to manage rising inflation levels. It is expected to begin raising its benchmark interest rate in March. In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates four times this year, according to a CNBC article.
Commenting on the market, NAHB Chief Economist Robert Dietz has reportedly commented that “The HMI data was collected during the first two weeks of January and do not fully reflect the recent jump in mortgage interest rates. While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022.”
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $2.94 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) in annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Rotate to Cyclical Sectors With These Top-Ranked ETFs).
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF, follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $2.19 billion. SPDR S&P Homebuilders ETF charges 35 bps in annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: 5 ETF Predictions for 2022).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.7% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports.
Invesco Dynamic Building & Construction ETF has amassed assets worth $265.7 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: 4 Sector ETFs to Play Despite Soft December Jobs Data).
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $80.8 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).
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Will ETFs Suffer as US Homebuilder Confidence Slips in January?
The U.S. housing sector feels the pain of rising inflation levels and persistent supply-chain disturbances amid strengthening demand. This has led to the home builder sentiment breaking the streak of a four-month increase. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped by a point to 83 in January this year from 84 in December, 83 in November, 80 in October and 30 in April (the lowest since June 2012). However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index remained steady at 90 in January. The metric measuring traffic of prospective buyers also saw a two-point decline to 69. Sales expectations for the next six months also slipped by a couple of points to 83, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast declined by a point to 73. However, the South and Western Index rose by one point, respectively, to 88. The Midwest increased by a point to 75, per the release.
Going by the press release, NAHB Chairman Chuck Fowke reportedly said that “Higher material costs and lack of availability are adding weeks to typical single-family construction times. NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2020. Policymakers need to take action to fix supply chains. Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector delivered an impressive performance earlier despite the tough pandemic times. However, rising softwood lumber, material and labor costs remained a major hurdle for homebuilders. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs.
The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting the affordability as prices of existing and new homes are soaring.
Meanwhile, the housing market steadily benefited from low borrowing costs and changing demographic preferences of a large chunk of the population as people increasingly looked for work-from-home-friendly properties. Individuals were shifting from city centers to suburbs and other low-density areas, looking for spacious accommodations for home offices and schools, per sources.
However, the Federal Reserve has also hinted at taking aggressive measures to manage rising inflation levels. It is expected to begin raising its benchmark interest rate in March. In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates four times this year, according to a CNBC article.
Commenting on the market, NAHB Chief Economist Robert Dietz has reportedly commented that “The HMI data was collected during the first two weeks of January and do not fully reflect the recent jump in mortgage interest rates. While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022.”
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF (ITB - Free Report)
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $2.94 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) in annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Rotate to Cyclical Sectors With These Top-Ranked ETFs).
SPDR S&P Homebuilders ETF (XHB - Free Report)
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF, follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $2.19 billion. SPDR S&P Homebuilders ETF charges 35 bps in annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: 5 ETF Predictions for 2022).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.7% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports.
Invesco Dynamic Building & Construction ETF has amassed assets worth $265.7 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: 4 Sector ETFs to Play Despite Soft December Jobs Data).
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $80.8 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).