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Housing ETFs to Play D.R. Horton Q1 Earnings Beat & Fed Help

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D.R. Horton (DHI - Free Report) , one of the biggest and well-known homebuilders in the nation, came up with upbeat first-quarter fiscal 2021 results. Earnings came in at $2.14 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.72 by 24.4%. The reported figure also increased 84% from the year-ago period. Total revenues (Homebuilding, Forestar and Financial Services) came in at $5.93 billion, up 47.6% year over year. The reported figure beat the consensus mark by 6.1%.

Homebuilding revenues of $5.72 billion increased 47% from the prior-year quarter. Home sales also increased 47.7% year over year to $5.69 billion, aided by higher home deliveries. Land/lot sales and other revenues were $19.9 million, up from $19.7 million a year ago.

Home closings increased 45% from the prior-year quarter to 18,739 homes and 48% in value to $5.7 billion. It recorded growth across all regions, namely East, Midwest, Southeast, and South Central, Southwest and West.

Upbeat Industry Fundamentals

Sales of existing homes in the United States increased 0.7% in December, making 2020 a year best in 14 years. It is one of the thriving areas of the U.S. economy (read: ETFs to Gain on Upbeat US Housing Starts in December).

The median sales price was $309,800 in December, up 12.9% from a year ago. The solid jump in home prices reflected strong demand as Americans are working from home amid the pandemic and are seeking to move to spacious homes in suburban areas. Record-low mortgage rates have also being aiding the home-buying spree.

Super-Dovish Fed and Record-Low Mortgage Rates

Federal Reserve’s bond buying program has helped to drive mortgage rates and other loan interest rates to the lowest level on record. According to Bankrate’s latest survey of the U.S. largest mortgage lenders, as of Jan 27, 2021, the benchmark 30-year fixed mortgage rate was 2.870% with an annual percentage rate (APR) of 3.170%. The average 15-year fixed mortgage rate is 2.360% with an APR of 2.690%.

Investors should also note that homebuilding stocks come from a top-ranked Zacks industry (top 13%).

Market & ETF Impact

The above-mentioned factors should boost iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) ahead. DHI takes the top spot in the fund ITB with about 14.05% of the fund. XHB follows a more spread-out approach with no stock accounting for more than 4.89% of the portfolio. DHI takes 4.19% of the fund.

In a nutshell, investors who want to bet on the Fed’s dovishness and upbeat earnings, may easily take the ETF route to bet on the housing market. This is because a basket approach always safeguards investors from stock-specific volatility.

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