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ETFs to Shine on Positive U.S. New Home Sales Data

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The latest new home sales data is encouraging as sales of new single-family homes in the United States hit a 13-year high in June. Per the Commerce Department data, new home sales rose 13.8% in June to a seasonally adjusted annual rate of 776,000 units (the highest level since July 2007). This compares favorably with May’s sales pace that was revised upward to 682,000 units from the previously-reported 676,000 units. Year over year, new home sales rose 6.9% in June. It is being believed that the housing market is getting support from low mortgage rates and changing demand patterns with increasing preference for houses in less-populated locations amid the coronavirus outbreak. 

New home sales, which make for 14% of housing market sales, rose 7.2% in the South and surged 89.7% in the Northeast in June, per a Reuters article. Moreover, sales rose 10.5% in the Midwest and 18% in the West.

Is Housing Market Momentum Back?

The recently-released data on the U.S. builder confidence was upbeat as well. Going by the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence  for newly-built single-family homes surged to 72 points in July from 58 in June. The same sentiment reached 37 in May and 30 in April (the lowest since June 2012). 

According to the Commerce Department, total housing starts rose 17.3% to a seasonally adjusted annual rate of 1.19 million units in June NAHB press release. The figure almost met analysts’ expectations of 1.20-million units, per a MarketWatch poll. However, on a year-over-year basis, housing starts declined 4% in the said month. Building permits, a construction pointer for the coming months, inched up 2.1% to an annualized rate of 1.24 million units in June.

Existing home sales, including single-family homes, town homes, condominiums and co-ops, which account for more than 90% of U.S. home sales, were strong in June. The National Association of Realtors (NAR’s) data showed a 20.7% rise in existing homes sales to a seasonally-adjusted annual rate of 4.72 million units in June. It compares favorably with 3.91 million units observed in May (the lowest level since October 2010). 

Low interest rates are boosting demand in the housing market, leading to a spurt in in mortgage applications. Per a Reuters article, the 30-year mortgage rate had declined to 2.98%, on average, in the week ending Jul 17. Analysts believe that the Fed support is maintaining the rates at modest levels. Also, the rising economic uncertainty amid the coronavirus outbreak is driving demand for safe-haven assets like U.S. Treasuries (per the Reuters article). This, in turn, will spur consumer spending and demand in the housing market.

Meanwhile, persistent inventory scarcity might further lift prices. However, low employment levels and an aggravating coronavirus outbreak can continue to impede the U.S. housing market’s momentum.

Homebuilder ETFs to Shine

Given the encouraging scenario in the U.S. housing market, let’s take a look at a few homebuilder ETFs.

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 AUM of $1.91 billion, it holds a basket of 44 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It currently has a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Mortgage Rates at Record Lows: Buy Homebuilder & REIT ETFs).

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 35 securities in its basket. It has AUM of $1 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3 at present, with a High-risk outlook (read: all the Materials ETFs here).

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 5.51% share. It has amassed assets worth $106.9 million. The expense ratio is 0.60%. It is currently a Zacks #3 Ranked ETF, with a High-risk outlook (see: Trump or Biden, Infrastructure ETFs to Soar Higher).

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