The National Association of Home Builders/Wells Fargo Housing Market Index declined 6 points in August to 49. Anything below 50 is considered negative. This marked the eighth straight drop in the index.
The index has not entered in negative territory since a very brief decline at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014, the CNBC article indicated.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz, as quoted on CNBC.
Of the index’s three components, current sales conditions fell 7 points to 57, sales expectations in the next six months declined 2 points to 47 and buyer traffic dropped 5 points to 32.
U.S. homebuilding declined to the lowest level in nearly 1-1/2 years in July, indicating the housing market could shrink further in the third quarter. Housing starts nosedived 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Economists polled by Reuters had forecast starts declining to a rate of 1.540 million units, as quoted on Reuters.
Despite higher costs for land, labor and materials, about 1 in 5 builders in August reported a decline in prices in the past month to boost sales or limit cancellations. The average drop in home prices reported was 5%.
“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” Dietz said, as quoted on CNBC.
Any Silver Lining?
Inflation in the United States moderated slightly as energy and gasoline prices dropped. This is especially true as the consumer price index (“CPI”) jumped 8.5% year over year in July, down from a 9.1% year-over-year increase in June, which was the fastest increase since November 1981. The producer price index (PPI) showed prices fell 0.5% sequentially compared to expectations of a 0.2% increase. If this decline continues for longer, construction costs may come down.
If inflation continues to fall, the Fed might go slow on the rate hike front. This, in turn, may lower mortgage rates, thereby enticing buyers. U.S. consumer sentiment too rose in August from a record low earlier this summer, and American households' near-term outlook for inflation fell. The University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 55.1, up from 51.5 in the prior month. This is another winning proposition for the homebuilders.
ETFs in Focus
Against this backdrop, below we highlight a few housing ETFs investors may want to keep a close tab on.
iShares U.S. Home Construction ETF (ITB - Free Report)
The underlying Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. It is a free-float adjusted market capitalization-weighted index. It measures the performance of the home construction sector of the U.S. equity market. The fund charges 41 bps in fees.
SPDR S&P Homebuilders ETF (XHB - Free Report)
The underlying S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is a modified equal weight index. The fund charges 35 bps in fees.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
The underlying Dynamic Building & Construction Intellidex Index is comprised of stocks of U.S. building and construction companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The fund charges 60 bps in fees.
Hoya Capital Housing ETF (HOMZ - Free Report)
The underlying Hoya Capital Housing 100 Index is designed to track total spending on housing and housing-related services across the United States. The fund charges 30 bps in fees.
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The National Association of Home Builders/Wells Fargo Housing Market Index declined 6 points in August to 49. Anything below 50 is considered negative. This marked the eighth straight drop in the index.
The index has not entered in negative territory since a very brief decline at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014, the CNBC article indicated.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz, as quoted on CNBC.
Of the index’s three components, current sales conditions fell 7 points to 57, sales expectations in the next six months declined 2 points to 47 and buyer traffic dropped 5 points to 32.
U.S. homebuilding declined to the lowest level in nearly 1-1/2 years in July, indicating the housing market could shrink further in the third quarter. Housing starts nosedived 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Economists polled by Reuters had forecast starts declining to a rate of 1.540 million units, as quoted on Reuters.
Despite higher costs for land, labor and materials, about 1 in 5 builders in August reported a decline in prices in the past month to boost sales or limit cancellations. The average drop in home prices reported was 5%.
“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” Dietz said, as quoted on CNBC.
Any Silver Lining?
Inflation in the United States moderated slightly as energy and gasoline prices dropped. This is especially true as the consumer price index (“CPI”) jumped 8.5% year over year in July, down from a 9.1% year-over-year increase in June, which was the fastest increase since November 1981. The producer price index (PPI) showed prices fell 0.5% sequentially compared to expectations of a 0.2% increase. If this decline continues for longer, construction costs may come down.
If inflation continues to fall, the Fed might go slow on the rate hike front. This, in turn, may lower mortgage rates, thereby enticing buyers. U.S. consumer sentiment too rose in August from a record low earlier this summer, and American households' near-term outlook for inflation fell. The University of Michigan's preliminary August reading on the overall index on consumer sentiment came in at 55.1, up from 51.5 in the prior month. This is another winning proposition for the homebuilders.
ETFs in Focus
Against this backdrop, below we highlight a few housing ETFs investors may want to keep a close tab on.
iShares U.S. Home Construction ETF (ITB - Free Report)
The underlying Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. It is a free-float adjusted market capitalization-weighted index. It measures the performance of the home construction sector of the U.S. equity market. The fund charges 41 bps in fees.
SPDR S&P Homebuilders ETF (XHB - Free Report)
The underlying S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is a modified equal weight index. The fund charges 35 bps in fees.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
The underlying Dynamic Building & Construction Intellidex Index is comprised of stocks of U.S. building and construction companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The fund charges 60 bps in fees.
Hoya Capital Housing ETF (HOMZ - Free Report)
The underlying Hoya Capital Housing 100 Index is designed to track total spending on housing and housing-related services across the United States. The fund charges 30 bps in fees.
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