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ETFs to Gain on Upbeat US Housing Starts in October
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Another round of upbeat data from the U.S. housing market signals that the sector is holding its ground strongly despite the rising coronavirus cases. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, total housing starts rose 4.9% to a seasonally-adjusted annual rate of 1.53 million units in October. The figure also beat September’s revised figure of 1.459 million units along with the year-ago figure of 1.34 million units. The reading surpassed analysts’ expectations of 1.46 million units, per a Reuters’ poll.
Building permits, a construction pointer for the coming months, remained unchanged at 1.545 million units in October (the highest since March 2007).
There was a 6.4% increase in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 1.179 million units in October. Moreover, permits to construct single-family homes climbed 0.6% to 1.12 million units in the month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment remained unchanged at 351,000 units last month. However, there was a 1.6% decline in permits to a rate of 425,000 units in October for building multi-family homes.
Notably, single-family starts rose for six consecutive months. The upside is largely being driven by the pandemic as at least 21% of the labor force is working from home, per a Reuters article. This resulted in people shifting from city centers to suburbs and other low-density areas as people are looking for spacious accommodations for home offices and schools, according to the same article.
The recently-released data on the U.S. builder confidence was upbeat as well. Per the monthly NAHB/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly-built single-family homes surged to 90 points in November from 85 in October, 83 points in September and 30 in April (the lowest since June 2012). Last November, the index was at 71. Notably, any reading above 50 is considered positive and signals at an improving confidence.
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe that support from the Federal Reserve is keeping rates at such modest levels. The housing market is also steadily benefiting from changing demographical preferences of a large chunk of population as people are now increasingly looking for work-from-home-friendly properties.
Meanwhile, rising lumber prices, material and labour costs can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and a second wave of coronavirus outbreak may impede momentum of the U.S. housing market. Moreover, there is a fear that interest rates may rise as positive news regarding the coronavirus vaccine flows in the market.
In this regard, Chris Rupkey, chief economist at MUFG in New York, has said that “the million dollar question remains how long the recovery in housing can continue as the shocking number of new coronavirus cases is paralyzing commerce in many parts of the country and leading to new restrictions and lockdowns,” per a Reuters article.
Homebuilder ETFs That May Keep Gaining
In such a scenario, here are a few housing ETFs that might gain from the improving housing sector scenario:
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 $2.16 billion, it holds a basket of 46 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It has a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Can Solid Confidence & Rally in Housing ETFs Last Ahead?).
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 $1.38 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: Tap Homebuilding ETFs on Upbeat Earnings & Vaccine Hopes).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 30 stocks, each accounting for less than a 5.75% share. It amassed assets worth $155.7 million. The expense ratio is 0.59%. The fund is Zacks #3 Ranked, with a High-risk outlook (read: all the Materials ETFs here).
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the US Housing Industry. It has AUM of $38.4 million. The fund charges 30 bps in annual fees and carries a Zacks ETF Rank of 3.
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ETFs to Gain on Upbeat US Housing Starts in October
Another round of upbeat data from the U.S. housing market signals that the sector is holding its ground strongly despite the rising coronavirus cases. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, total housing starts rose 4.9% to a seasonally-adjusted annual rate of 1.53 million units in October. The figure also beat September’s revised figure of 1.459 million units along with the year-ago figure of 1.34 million units. The reading surpassed analysts’ expectations of 1.46 million units, per a Reuters’ poll.
Building permits, a construction pointer for the coming months, remained unchanged at 1.545 million units in October (the highest since March 2007).
There was a 6.4% increase in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 1.179 million units in October. Moreover, permits to construct single-family homes climbed 0.6% to 1.12 million units in the month (per a NAHB press release).
Meanwhile, housing starts for the multi-family housing segment remained unchanged at 351,000 units last month. However, there was a 1.6% decline in permits to a rate of 425,000 units in October for building multi-family homes.
Notably, single-family starts rose for six consecutive months. The upside is largely being driven by the pandemic as at least 21% of the labor force is working from home, per a Reuters article. This resulted in people shifting from city centers to suburbs and other low-density areas as people are looking for spacious accommodations for home offices and schools, according to the same article.
The recently-released data on the U.S. builder confidence was upbeat as well. Per the monthly NAHB/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly-built single-family homes surged to 90 points in November from 85 in October, 83 points in September and 30 in April (the lowest since June 2012). Last November, the index was at 71. Notably, any reading above 50 is considered positive and signals at an improving confidence.
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe that support from the Federal Reserve is keeping rates at such modest levels. The housing market is also steadily benefiting from changing demographical preferences of a large chunk of population as people are now increasingly looking for work-from-home-friendly properties.
Meanwhile, rising lumber prices, material and labour costs can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and a second wave of coronavirus outbreak may impede momentum of the U.S. housing market. Moreover, there is a fear that interest rates may rise as positive news regarding the coronavirus vaccine flows in the market.
In this regard, Chris Rupkey, chief economist at MUFG in New York, has said that “the million dollar question remains how long the recovery in housing can continue as the shocking number of new coronavirus cases is paralyzing commerce in many parts of the country and leading to new restrictions and lockdowns,” per a Reuters article.
Homebuilder ETFs That May Keep Gaining
In such a scenario, here are a few housing ETFs that might gain from the improving housing sector scenario:
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 $2.16 billion, it holds a basket of 46 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It has a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Can Solid Confidence & Rally in Housing ETFs Last Ahead?).
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 $1.38 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: Tap Homebuilding ETFs on Upbeat Earnings & Vaccine Hopes).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 30 stocks, each accounting for less than a 5.75% share. It amassed assets worth $155.7 million. The expense ratio is 0.59%. The fund is Zacks #3 Ranked, with a High-risk outlook (read: all the Materials ETFs here).
Hoya Capital Housing ETF (HOMZ - Free Report)
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the US Housing Industry. It has AUM of $38.4 million. The fund charges 30 bps in annual fees and carries a Zacks ETF Rank of 3.
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 >>