The latest new home sales data looks encouraging. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales rose 1.6% in December to a seasonally-adjusted annual rate of 842,000 units. This compares favorably with November’s sales pace that was revised downward to 829,000 units from the previously-reported 841,000 units. However, the metric lagged economists’ forecast of a 1.9% rise to a rate of 865,000 units in December, per a Reuters poll. New home sales rose 15.2% in December year over year. Going on, the metric came in at 811,000 in 2020, increasing 18.8% from 2019.

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 increased in the Midwest and West but declined in the Northeast and South in December. Notably, there was an 8% year-over-year rise in median new house price to $355,900 in December, per a Reuters article. Meanwhile, the number of new homes on market in December rose to 302,000 from 290,000 in November.

Will US Housing Market Momentum Remain?

The recent releases of upbeat data from the U.S. housing market highlight the sector’s strength despite the rising coronavirus cases. However, U.S. homebuilder confidence in the market for single-family homes surprisingly declined in January. It seems as if the space is now rattled by the aggravating pandemic and rising lumber prices.

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  83 points in January in comparison to 86 in December, 90 in November, 85 in October and 30 in April (the lowest since June 2012). Meanwhile, the release of encouraging data from the U.S. housing market highlights the sector’s strength even amid soaring coronavirus cases. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts rose 5.8% to a seasonally-adjusted annual rate of 1.669 million units in December. 

Going on, the pandemic-hit 2020 saw existing home sales reach the highest level since the Great Recession. This was highlighted in the National Association of Realtors’ (NAR) report, which also showed a 0.7% month-over-month rise in existing homes sales to a seasonally-adjusted annual rate of 6.76 million units in December.

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.

President Joe Biden’s proposed new policy can aid new homebuyers. Notably, first-time buyers are defined as those who haven’t purchased a home in at least three years. Biden offered a $15,000 first-time homebuyer tax credit that can be utilized to make down payments, per a CNBC article. If sanctioned, this incentive can make homes affordable, much like the $7,500 first-time homebuyer credit established under the Obama administration through the Housing and Economic Recovery Act.

Meanwhile, rising lumber prices, material and labor costs can result in sluggishness in the housing market despite low interest rates. Going by the Labor Department data, softwood lumber prices rose 52.2% on a year-over-year basis in December, as mentioned in a Reuters article. Also, low employment levels and aggravating coronavirus outbreak may impede momentum of the U.S. housing market.

Homebuilder ETFs Shining Bright

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 Quick QuoteITB - 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 an AUM of $2.25 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: Buy the Dip in These ETFs).

SPDR S&P Homebuilders ETF (XHB Quick QuoteXHB - 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 an AUM of $1.46 billion. The fund charges 35 bps in annual fees (read: Housing ETFs to Play D.R. Horton Q1 Earnings Beat & Fed Help).

Invesco Dynamic Building & Construction ETF (PKB Quick QuotePKB - Free Report)  

This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 32 stocks, each accounting for less than 5.20% share. It has amassed assets worth $198.8 million. The expense ratio is 0.59% (read: 4 Sector ETFs & Stocks Top Despite Soft December Jobs Data).

Hoya Capital Housing ETF (HOMZ Quick QuoteHOMZ - 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 an AUM of $44.8 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).

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