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Are Housing ETFs Recovering From Coronavirus Injuries? Let's See
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The momentum in the U.S. housing market seems to be returning and some encouraging data sets are emerging from the sector. The May data on U.S. housing starts and building permits reflect improvements in U.S. homebuilding. According to the Commerce Department, housing starts jumped 4.3% to a seasonally adjusted annual rate of 974,000 units in May per a National Association of Home Builders (NAHB) press release. The metric compares favorably with the fall of 26.4% in April and 19% in March. On a year-over-year basis, housing starts were down 23.2% in May.
Building permits, a construction pointer for the coming months, climbed 14.4% to a rate of 1.220 million units in May. There was a 0.1% rise in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 675,000 units in May. Moreover, permits to construct single-family homes rose 11.9% to 745,000 units in the reported month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment were up 15% to 299,000 units last month. Moreover, there was an 18.8% increase in permits to build multi-family homes to a rate of 475,000 units in May.
The latest data on the U.S. homebuilder confidence seems encouraging even as the number of coronavirus cases continues to spike in the United States. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for single-family homes surged to 58 points in June from 37 in May and 30 in April (the lowest since June 2012).
What’s Leading to the Housing Market Recovery?
Low interest rates are boosting demand in the housing market, resultantly, increasing mortgage applications are being observed as well. Going by a Reuters article, data suggests that applications for loans to purchase a home rose to a near 11-1/2-year high in the week ending Jun 12. Mortgage applications are also being believed to have risen above the pre-pandemic levels (per a CNBC report).
Per a MarketWatch article, a Realtor.com report reflects that price gains have rebounded to their pre-coronavirus pace, which is also an indicator of improving housing market conditions. Meanwhile, scarcity of inventories still persists, which might lead to further price increases. However, low employment levels and fears of a second wave of coronavirus outbreak will continue to dampen the momentum of the housing market in the United States.
In this regard, Nancy Vanden Houten, lead economist at Oxford Economics said “We expect a gradual recovery in home building to continue over the balance of 2020, supported by brightening homebuilder sentiment, solid demand, as evidenced by rising mortgage applications, and an ongoing shortage of inventory”, per a Reuters article.
Housing ETFs That Might Shine
In such a scenario, here are a few housing ETFs that investors can keep an eye on:
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 $1.44 billion, it holds a basket of 44 stocks, heavily focused on the top three 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: Sector ETFs & Stocks to Explode as Fed Remains Dovish).
A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 34 securities in its basket. It has an AUM of $808.3 million. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: Housing ETFs Sizzle With Opportunities as Economy Reopens).
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 5.28% share. It has amassed assets worth $77.2 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: all the Materials ETFs here).
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Are Housing ETFs Recovering From Coronavirus Injuries? Let's See
The momentum in the U.S. housing market seems to be returning and some encouraging data sets are emerging from the sector. The May data on U.S. housing starts and building permits reflect improvements in U.S. homebuilding. According to the Commerce Department, housing starts jumped 4.3% to a seasonally adjusted annual rate of 974,000 units in May per a National Association of Home Builders (NAHB) press release. The metric compares favorably with the fall of 26.4% in April and 19% in March. On a year-over-year basis, housing starts were down 23.2% in May.
Building permits, a construction pointer for the coming months, climbed 14.4% to a rate of 1.220 million units in May. There was a 0.1% rise in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 675,000 units in May. Moreover, permits to construct single-family homes rose 11.9% to 745,000 units in the reported month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment were up 15% to 299,000 units last month. Moreover, there was an 18.8% increase in permits to build multi-family homes to a rate of 475,000 units in May.
The latest data on the U.S. homebuilder confidence seems encouraging even as the number of coronavirus cases continues to spike in the United States. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for single-family homes surged to 58 points in June from 37 in May and 30 in April (the lowest since June 2012).
What’s Leading to the Housing Market Recovery?
Low interest rates are boosting demand in the housing market, resultantly, increasing mortgage applications are being observed as well. Going by a Reuters article, data suggests that applications for loans to purchase a home rose to a near 11-1/2-year high in the week ending Jun 12. Mortgage applications are also being believed to have risen above the pre-pandemic levels (per a CNBC report).
Per a MarketWatch article, a Realtor.com report reflects that price gains have rebounded to their pre-coronavirus pace, which is also an indicator of improving housing market conditions. Meanwhile, scarcity of inventories still persists, which might lead to further price increases. However, low employment levels and fears of a second wave of coronavirus outbreak will continue to dampen the momentum of the housing market in the United States.
In this regard, Nancy Vanden Houten, lead economist at Oxford Economics said “We expect a gradual recovery in home building to continue over the balance of 2020, supported by brightening homebuilder sentiment, solid demand, as evidenced by rising mortgage applications, and an ongoing shortage of inventory”, per a Reuters article.
Housing ETFs That Might Shine
In such a scenario, here are a few housing ETFs that investors can keep an eye on:
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 $1.44 billion, it holds a basket of 44 stocks, heavily focused on the top three 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: Sector ETFs & Stocks to Explode as Fed Remains Dovish).
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 34 securities in its basket. It has an AUM of $808.3 million. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: Housing ETFs Sizzle With Opportunities as Economy Reopens).
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 5.28% share. It has amassed assets worth $77.2 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: all the Materials ETFs here).
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 >>