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The housing market is cooling down this year, given rising mortgage rates, higher home prices, falling home sales and rising inventories. Moody's Analytics chief economist Mark Zandi said that the housing market is entering the “most significant contraction in activity since 2006.”
As a result, 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) are down 33.5%, 32.6%, 28.5% and 31.4%, respectively so far this year.
Weak Trends
Mortgage rates have touched their highest levels since 2006. Per Mortgage Bankers Association data, the average rate for the 30-year fixed mortgage climbed to 6.81% in the first week of October, marking the eighth straight week of increase. This is double the 3% rate at the start of the year.
The increase in rates has made home ownership more expensive for first-time buyers, discouraging people from buying homes. Mortgage applications to purchase a home dropped 2.1% last week, the lowest level since 2015, while refinancing demand dipped 1.8% to a fresh 22-year low. The dismal trend is likely to continue on the Fed’s aggressive tightening monetary policy (read: 5 Favorite Sectors of Q3 Earnings and Their ETFs).
Meanwhile, home prices continued to experience double-digit gains but have cooled down at a historic rate. Prices across the country increased 15.8% year over year in July but declined from an 18.1% increase in June, according to the S&P CoreLogic Case-Shiller Home Price Index. The Case-Shiller’s 10-city composite, which tracks prices in major metropolitan areas such as New York and Boston, climbed 14.9% year over year, down from 17.4% in June. The 20-City composite, which adds regions such as the Seattle metro area and greater Detroit, gained 16.1%, down from 18.7% in the previous month.
With higher rates coupled with high home prices, nearly all the major housing markets in the United States are less affordable than they have been historically. In fact, affordability is near its worst point on record.
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 $1.1 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Reasons Why Housing ETFs Could Gain in Q4).
SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space with AUM of $839.6 million and an average daily volume of 3.1 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5.4% of assets (read: 4 Sector ETFs to Play Upbeat September Jobs Data).
Invesco Dynamic Building & Construction ETF has amassed assets worth $109.8 million and sees a lower volume of roughly 10,000 shares per day on average. Expense ratio comes in at 0.57%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index.
Hoya Capital Housing ETF has accumulated $33.3 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 4,000 shares.
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Is the Party Over for Housing ETFs?
The housing market is cooling down this year, given rising mortgage rates, higher home prices, falling home sales and rising inventories. Moody's Analytics chief economist Mark Zandi said that the housing market is entering the “most significant contraction in activity since 2006.”
As a result, 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) are down 33.5%, 32.6%, 28.5% and 31.4%, respectively so far this year.
Weak Trends
Mortgage rates have touched their highest levels since 2006. Per Mortgage Bankers Association data, the average rate for the 30-year fixed mortgage climbed to 6.81% in the first week of October, marking the eighth straight week of increase. This is double the 3% rate at the start of the year.
The increase in rates has made home ownership more expensive for first-time buyers, discouraging people from buying homes. Mortgage applications to purchase a home dropped 2.1% last week, the lowest level since 2015, while refinancing demand dipped 1.8% to a fresh 22-year low. The dismal trend is likely to continue on the Fed’s aggressive tightening monetary policy (read: 5 Favorite Sectors of Q3 Earnings and Their ETFs).
Meanwhile, home prices continued to experience double-digit gains but have cooled down at a historic rate. Prices across the country increased 15.8% year over year in July but declined from an 18.1% increase in June, according to the S&P CoreLogic Case-Shiller Home Price Index. The Case-Shiller’s 10-city composite, which tracks prices in major metropolitan areas such as New York and Boston, climbed 14.9% year over year, down from 17.4% in June. The 20-City composite, which adds regions such as the Seattle metro area and greater Detroit, gained 16.1%, down from 18.7% in the previous month.
With higher rates coupled with high home prices, nearly all the major housing markets in the United States are less affordable than they have been historically. In fact, affordability is near its worst point on record.
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 $1.1 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Reasons Why Housing ETFs Could Gain in Q4).
SPDR S&P Homebuilders ETF (XHB - Free Report)
SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space with AUM of $839.6 million and an average daily volume of 3.1 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5.4% of assets (read: 4 Sector ETFs to Play Upbeat September Jobs Data).
Invesco Dynamic Building & Construction ETF has amassed assets worth $109.8 million and sees a lower volume of roughly 10,000 shares per day on average. Expense ratio comes in at 0.57%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index.
Hoya Capital Housing ETF has accumulated $33.3 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 4,000 shares.