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ETFs to Pick as US Existing Home Sales Hit a 17-Month High
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Rising for the second consecutive month, sales of existing homes in the United States increased in August to a 17-month high, pleasing homebuilders and investors. Sales of existing homes rose in Northeast, Midwest and South on a monthly and annual basis. However, sales rose from the year-ago level in West but declined on a monthly basis. In this regard, National Association of Realtors’ (NAR) chief economist, Lawrence Yun, commented that “having the mortgage rates low for several consecutive months, this is enticing buyers back into the market” (read: Homebuilders ETFs to Gain as Sentiment Surges to Yearly High).
A Sneak Peek Into NAR’s Data
NAR’s data showed that sales of existing homes, accounting for around 90% of total U.S. home sales, increased 1.3% to a seasonally adjusted annual rate of 5.49 million units in August. This compares with 5.42 million units in July. Moreover, it appears favorable in comparison with Reuters economists’ forecast of a 0.4% decline to 5.37 million units. Moreover, existing home sales rose 2.6% year over year.
Moreover, in comparison to 4.3 months needed to deplete the supply of homes in the year-ago period and 4.2 months in July, the latest data suggests that just 4.1 months will suffice. However, first-time buyers accounted for 31% of sales in August, down from 32% in July.
What’s Driving the Upside?
It is widely believed that declining mortgage rates have helped the residential real estate sector as lower borrowing costs are making new houses more affordable. Per Freddie Mac, the average 30-year fixed mortgage rate has declined to 3.5%. Also, the Federal Reserve has cut interest rate by 25 basis points to the range of 1.75-2% for the second time at the FOMC meeting in September. Meanwhile, investors are optimistic that the Fed will announce more interest rate cuts this year (read: Dividend ETFs to Grab as Fed Cuts Rates Once Again).
There was a shortage in supply of affordable homes which bumped up prices for this category. In this regard, the median existing-home price in August was $278,200, up 4.7% year over year. In the month,total housing inventory declined 2.6% from the prior-year period to 1.86 million homes.
ETFs to Snap Up
Lawrence Yun had earlier commented that housing sales might pick up in the second half of 2019. Given the improving housing market conditions, it will be prudent for investors to park their money in some homebuilder ETFs.
iShares U.S. Home Construction ETF (ITB - Free Report) —up 41.2% year to date
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.18 billion, it holds a basket of 45 stocks, heavily concentrating on the top two firms. The product charges 42 bps in annual fees and trades in a hefty volume of around 2.3 million shares a day on average. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Homebuilder, REIT ETFs Booming on Falling Mortgage Rates).
The most 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 AUM of $658.4 million and trades in average volume of around 2.3 million shares a day. The fund charges 35 bps in annual fees and has a Zacks ETF Rank of 3 with a High risk outlook (see: all the Materials ETFs here) (read: Ride the Millennial Wave With These ETFs).
Invesco Dynamic Building & Construction ETF (PKB - Free Report) — up 35.8%
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket with each accounting less than 5.1% share. It has amassed assets worth $113.5 million and sees lower volume of around 15,000 shares per day on average. Expense ratio comes in at 0.60%. It is a Zacks #3 Ranked ETF with a High risk outlook (read: ETF Winners Amid Half-Hearted Response to Fed's Rate Cut).
Conclusion
The NAR’s data for existing-home sales reflects improving housing market conditions. Moreover, the recent favorable data shows that U.S. home construction soared to more than a 12-year high in August. U.S. housing starts jumped 12.3% to a seasonally adjusted annual rate of 1.364 million units, the highest since June 2007. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), the builder confidence rose to 68 in September compared with an upwardly-revised 67 in August, 65 in July and another 67 a year ago. In fact, improving domestic economy conditions, rising home buyers’ confidence in economic growth and favorable demographic changes are likely to drive demand in the near term as well.
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ETFs to Pick as US Existing Home Sales Hit a 17-Month High
Rising for the second consecutive month, sales of existing homes in the United States increased in August to a 17-month high, pleasing homebuilders and investors. Sales of existing homes rose in Northeast, Midwest and South on a monthly and annual basis. However, sales rose from the year-ago level in West but declined on a monthly basis. In this regard, National Association of Realtors’ (NAR) chief economist, Lawrence Yun, commented that “having the mortgage rates low for several consecutive months, this is enticing buyers back into the market” (read: Homebuilders ETFs to Gain as Sentiment Surges to Yearly High).
A Sneak Peek Into NAR’s Data
NAR’s data showed that sales of existing homes, accounting for around 90% of total U.S. home sales, increased 1.3% to a seasonally adjusted annual rate of 5.49 million units in August. This compares with 5.42 million units in July. Moreover, it appears favorable in comparison with Reuters economists’ forecast of a 0.4% decline to 5.37 million units. Moreover, existing home sales rose 2.6% year over year.
Moreover, in comparison to 4.3 months needed to deplete the supply of homes in the year-ago period and 4.2 months in July, the latest data suggests that just 4.1 months will suffice. However, first-time buyers accounted for 31% of sales in August, down from 32% in July.
What’s Driving the Upside?
It is widely believed that declining mortgage rates have helped the residential real estate sector as lower borrowing costs are making new houses more affordable. Per Freddie Mac, the average 30-year fixed mortgage rate has declined to 3.5%. Also, the Federal Reserve has cut interest rate by 25 basis points to the range of 1.75-2% for the second time at the FOMC meeting in September. Meanwhile, investors are optimistic that the Fed will announce more interest rate cuts this year (read: Dividend ETFs to Grab as Fed Cuts Rates Once Again).
There was a shortage in supply of affordable homes which bumped up prices for this category. In this regard, the median existing-home price in August was $278,200, up 4.7% year over year. In the month,total housing inventory declined 2.6% from the prior-year period to 1.86 million homes.
ETFs to Snap Up
Lawrence Yun had earlier commented that housing sales might pick up in the second half of 2019. Given the improving housing market conditions, it will be prudent for investors to park their money in some homebuilder ETFs.
iShares U.S. Home Construction ETF (ITB - Free Report) —up 41.2% year to date
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.18 billion, it holds a basket of 45 stocks, heavily concentrating on the top two firms. The product charges 42 bps in annual fees and trades in a hefty volume of around 2.3 million shares a day on average. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Homebuilder, REIT ETFs Booming on Falling Mortgage Rates).
SPDR S&P Homebuilders ETF (XHB - Free Report) — up 32.6%
The most 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 AUM of $658.4 million and trades in average volume of around 2.3 million shares a day. The fund charges 35 bps in annual fees and has a Zacks ETF Rank of 3 with a High risk outlook (see: all the Materials ETFs here) (read: Ride the Millennial Wave With These ETFs).
Invesco Dynamic Building & Construction ETF (PKB - Free Report) — up 35.8%
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket with each accounting less than 5.1% share. It has amassed assets worth $113.5 million and sees lower volume of around 15,000 shares per day on average. Expense ratio comes in at 0.60%. It is a Zacks #3 Ranked ETF with a High risk outlook (read: ETF Winners Amid Half-Hearted Response to Fed's Rate Cut).
Conclusion
The NAR’s data for existing-home sales reflects improving housing market conditions. Moreover, the recent favorable data shows that U.S. home construction soared to more than a 12-year high in August. U.S. housing starts jumped 12.3% to a seasonally adjusted annual rate of 1.364 million units, the highest since June 2007. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), the builder confidence rose to 68 in September compared with an upwardly-revised 67 in August, 65 in July and another 67 a year ago. In fact, improving domestic economy conditions, rising home buyers’ confidence in economic growth and favorable demographic changes are likely to drive demand in the near term as well.
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 >>