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Will Housing ETFs Rally Suffer as US New Home Sales Disappoint?
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The latest new home sales data has again disappointed amid a low interest rate environment and favorably changing demand patterns in the U.S. housing sector. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales declined 11% last month to a seasonally adjusted annual rate of 841,000 units. This compares unfavorably with October’s sales pace that was revised downward to 945,000 units from the previously-reported 999,000 units. Moreover, the metric lagged economists’ forecast of a 0.3% decline to a rate of 995,000 units in November, per a Reuters poll. However, new home sales rose 20.8% in November 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 11.2% of housing market sales, declined across all four regions in November. Notably, there was a 2.2% year-over-year rise in median new house price to $335,300 in November, per a Reuters article. Meanwhile, the number of new homes on market last month rose to 286,000 from 281,000 in October.
Current US Housing Market Scenario
The recent releases of upbeat data from the U.S. housing market highlight the sector’s strength despite the rising coronavirus cases. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for newly-built single-family homes came in at 86 in December in comparison to 90 points in November, 85 in October, 83 in September and 30 in April (the lowest since June 2012). However, the December reading stands as the second highest in the history of the index. Any reading above 50 is considered positive and signals at improving confidence.
Moreover, according to the Commerce Department, total housing starts rose 1.2% to a seasonally-adjusted annual rate of 1.547 million units in November. The figure has narrowed the gap since February’s figure of 1.567 million units. The reading surpassed analysts’ expectations of 1.530 million units in November, per a Reuters’ poll. Building permits, a construction pointer for the coming months, increased 6.2% to a rate of 1.639 million units in the same month.
Low interest rates are driving 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. This upside is largely driven by the pandemic as at least 21.8% 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 they are looking for spacious accommodations for home offices as well as schools.
Meanwhile, the U.S. housing market has been consistently combatting with limited inventory, largely due to land shortages and skilled labor deficiencies along with escalating material costs. All these factors are affecting affordability as prices of both existing and new homes are soaring. Another looming concern is the possibility of rising interest rates, which will once again affect affordability of the housing market.
Also, low employment levels and an aggravating coronavirus outbreak may impede momentum of the U.S. housing market.
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 $2.10 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: 6 Secret Santa ETFs to Add Cheer to Your Portfolio).
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 $1.32 billion. The fund charges 35 bps in annual fees (read: ETFs to Gain on Positive US Housing Starts in November).
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 5.11% share. It amassed assets worth $177.3 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 $42.7 million. The fund charges 30 bps in annual fees.
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Will Housing ETFs Rally Suffer as US New Home Sales Disappoint?
The latest new home sales data has again disappointed amid a low interest rate environment and favorably changing demand patterns in the U.S. housing sector. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales declined 11% last month to a seasonally adjusted annual rate of 841,000 units. This compares unfavorably with October’s sales pace that was revised downward to 945,000 units from the previously-reported 999,000 units. Moreover, the metric lagged economists’ forecast of a 0.3% decline to a rate of 995,000 units in November, per a Reuters poll. However, new home sales rose 20.8% in November 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 11.2% of housing market sales, declined across all four regions in November. Notably, there was a 2.2% year-over-year rise in median new house price to $335,300 in November, per a Reuters article. Meanwhile, the number of new homes on market last month rose to 286,000 from 281,000 in October.
Current US Housing Market Scenario
The recent releases of upbeat data from the U.S. housing market highlight the sector’s strength despite the rising coronavirus cases. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for newly-built single-family homes came in at 86 in December in comparison to 90 points in November, 85 in October, 83 in September and 30 in April (the lowest since June 2012). However, the December reading stands as the second highest in the history of the index. Any reading above 50 is considered positive and signals at improving confidence.
Moreover, according to the Commerce Department, total housing starts rose 1.2% to a seasonally-adjusted annual rate of 1.547 million units in November. The figure has narrowed the gap since February’s figure of 1.567 million units. The reading surpassed analysts’ expectations of 1.530 million units in November, per a Reuters’ poll. Building permits, a construction pointer for the coming months, increased 6.2% to a rate of 1.639 million units in the same month.
Low interest rates are driving 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. This upside is largely driven by the pandemic as at least 21.8% 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 they are looking for spacious accommodations for home offices as well as schools.
Meanwhile, the U.S. housing market has been consistently combatting with limited inventory, largely due to land shortages and skilled labor deficiencies along with escalating material costs. All these factors are affecting affordability as prices of both existing and new homes are soaring. Another looming concern is the possibility of rising interest rates, which will once again affect affordability of the housing market.
Also, low employment levels and an aggravating coronavirus outbreak may impede momentum of the U.S. housing market.
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 $2.10 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: 6 Secret Santa ETFs to Add Cheer to Your Portfolio).
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 $1.32 billion. The fund charges 35 bps in annual fees (read: ETFs to Gain on Positive US Housing Starts in November).
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 5.11% share. It amassed assets worth $177.3 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 $42.7 million. The fund charges 30 bps in annual fees.
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 >>