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Will Housing ETFs Take a Pause as New Home Sales Decline?
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The latest new home sales data has disappointed despite the low interest rates and changing demand patterns in the U.S. housing sector. Per the U.S. Department of Housing and Urban Development and the U.S. Census Bureau data, new home sales declined 0.3% last month to a seasonally adjusted annual rate of 999,000 units. This compares unfavorably with September’s sales pace that was revised upward to 1.002 million units from the previously-reported 959,000 units. New home sales rose 41.5% in October year over year. Notably, new home sales are considered a leading housing market indicator since it is counted at the signing of a contract, per a Reuters article.
New home sales, which make up for more than 12% of housing market sales, declined in the South and West but rose in the Northeast and Midwest. Notably, there was a 2.5% year-over-year rise in median new house price to $330,600 in October, per a Reuters article. Meanwhile, the number of new homes on market in October remained flat at 278,000.
How is U.S. Housing Market Currently Performing?
Highlighting the encouraging housing market scenario, 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 improving confidence.
Moreover, 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 1.46 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.
National Association of Realtors (NAR’s) data showed a 4.3% month-over-month rise in existing homes sales to a seasonally adjusted annual rate of 6.85 million units in October. Further, existing home sales rose 26.6% year over year.
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. Notably, people are shifting from city centers to suburbs and other low-density areas looking for spacious accommodations for home offices and schools, per the sources.
Meanwhile, rising lumber prices as well as material and labor 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 with positive news regarding the coronavirus vaccine flowing into the market.
Homebuilder ETFs That May Keep Gaining
In such a scenario, here are a few housing ETFs that might gain from the current scenario of the U.S. housing sector:
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 $2.10 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 (read: Mortgage Rates Hit Record Low: ETF Winner & Loser).
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 $1.52 billion. The fund charges 35 bps in annual fees (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 5.63% share. It amassed assets worth $161.2 million. The expense ratio is 0.59% (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 $39.7 million. The fund charges 30 bps in annual fees (read: ETFs & Stocks to Ride on a Booming Housing Market).
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Will Housing ETFs Take a Pause as New Home Sales Decline?
The latest new home sales data has disappointed despite the low interest rates and changing demand patterns in the U.S. housing sector. Per the U.S. Department of Housing and Urban Development and the U.S. Census Bureau data, new home sales declined 0.3% last month to a seasonally adjusted annual rate of 999,000 units. This compares unfavorably with September’s sales pace that was revised upward to 1.002 million units from the previously-reported 959,000 units. New home sales rose 41.5% in October year over year. Notably, new home sales are considered a leading housing market indicator since it is counted at the signing of a contract, per a Reuters article.
New home sales, which make up for more than 12% of housing market sales, declined in the South and West but rose in the Northeast and Midwest. Notably, there was a 2.5% year-over-year rise in median new house price to $330,600 in October, per a Reuters article. Meanwhile, the number of new homes on market in October remained flat at 278,000.
How is U.S. Housing Market Currently Performing?
Highlighting the encouraging housing market scenario, 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 improving confidence.
Moreover, 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 1.46 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.
National Association of Realtors (NAR’s) data showed a 4.3% month-over-month rise in existing homes sales to a seasonally adjusted annual rate of 6.85 million units in October. Further, existing home sales rose 26.6% year over year.
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. Notably, people are shifting from city centers to suburbs and other low-density areas looking for spacious accommodations for home offices and schools, per the sources.
Meanwhile, rising lumber prices as well as material and labor 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 with positive news regarding the coronavirus vaccine flowing into the market.
Homebuilder ETFs That May Keep Gaining
In such a scenario, here are a few housing ETFs that might gain from the current scenario of the U.S. housing sector:
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 $2.10 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 (read: Mortgage Rates Hit Record Low: ETF Winner & Loser).
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 $1.52 billion. The fund charges 35 bps in annual fees (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 5.63% share. It amassed assets worth $161.2 million. The expense ratio is 0.59% (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 $39.7 million. The fund charges 30 bps in annual fees (read: ETFs & Stocks to Ride on a Booming Housing Market).
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 >>