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Will Housing ETFs Suffer on Weak US Housing Starts in January?
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The latest housing data reflects some sluggishness in the space amid the coronavirus crisis. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts slid 6% to a seasonally-adjusted annual rate of 1.580 million units in January. The reading lagged analysts’ expectations of 1.658 million units, per a Reuters’ poll. Notably, housing starts declined 2.3% on a year-over-year basis.
Building permits, a construction pointer for the coming months, increased 10.4% to a rate of 1.881 million units in the same month.
There was a 12.2% plunge in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 1.162 million units last January. However, permits to construct single-family homes climbed 3.8% to 1.269 million units in the period, per the sources.
Meanwhile, housing starts for the multi-family housing segment jumped 17.1% to 418,000 units last month. Moreover, there was a 27.2% rise in permits to a rate of 612,000 units in January for building multi-family homes.
Notably, single-family starts have risen for eight consecutive months till December 2020. It has been observed that the upside has been largely attributed to the pandemic-induced changing demographic preferences, as a large part 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.
The U.S. housing sector has pleased investors with impressive performance amid the tough pandemic times. However, it seems as if the space is now being rattled by the rising lumber prices.
Increasing lumber prices, material and labor costs can result in sluggishness in the housing market despite low interest rates. Going by Labor Department data, softwood lumber prices rose 73% on a year-over-year basis in January, as mentioned in a Reuters article. Also, low employment levels and an aggravating coronavirus outbreak may impede momentum of the U.S. housing market.
Going on, the U.S. housing market continues to battle against restrained inventory conditions that are delaying delivery times, largely due to land shortages, skilled labor deficiencies along with rising material costs. All these factors are affecting affordability as prices of the existing and new homes are soaring.
Meanwhile, low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Also, the introduction of another round of fiscal stimulus is expected to strengthen the U.S. housing market.
Going on, 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 84 in February in comparison to 83 points in January, 86 in December, 90 in November and 30 in April (the lowest since June 2012). The metric also surpassed economists’ median forecast of 83, per a Bloomberg’s poll. Any reading above 50 is considered positive and signals at improving confidence.
Homebuilder ETFs That May Keep Gaining
In such a background, 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 an AUM of $2.21 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).
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 $1.38 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 - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than 5.3% share. It has amassed assets worth $217.6 million. The expense ratio is 0.59% (read: Infrastructure ETFs & Stocks Up for a Rally in Biden Era).
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 represents the performance of the U.S. housing Industry. It has an AUM of $60.9 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).
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Will Housing ETFs Suffer on Weak US Housing Starts in January?
The latest housing data reflects some sluggishness in the space amid the coronavirus crisis. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts slid 6% to a seasonally-adjusted annual rate of 1.580 million units in January. The reading lagged analysts’ expectations of 1.658 million units, per a Reuters’ poll. Notably, housing starts declined 2.3% on a year-over-year basis.
Building permits, a construction pointer for the coming months, increased 10.4% to a rate of 1.881 million units in the same month.
There was a 12.2% plunge in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 1.162 million units last January. However, permits to construct single-family homes climbed 3.8% to 1.269 million units in the period, per the sources.
Meanwhile, housing starts for the multi-family housing segment jumped 17.1% to 418,000 units last month. Moreover, there was a 27.2% rise in permits to a rate of 612,000 units in January for building multi-family homes.
Notably, single-family starts have risen for eight consecutive months till December 2020. It has been observed that the upside has been largely attributed to the pandemic-induced changing demographic preferences, as a large part 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.
The U.S. housing sector has pleased investors with impressive performance amid the tough pandemic times. However, it seems as if the space is now being rattled by the rising lumber prices.
Increasing lumber prices, material and labor costs can result in sluggishness in the housing market despite low interest rates. Going by Labor Department data, softwood lumber prices rose 73% on a year-over-year basis in January, as mentioned in a Reuters article. Also, low employment levels and an aggravating coronavirus outbreak may impede momentum of the U.S. housing market.
Going on, the U.S. housing market continues to battle against restrained inventory conditions that are delaying delivery times, largely due to land shortages, skilled labor deficiencies along with rising material costs. All these factors are affecting affordability as prices of the existing and new homes are soaring.
Meanwhile, low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Also, the introduction of another round of fiscal stimulus is expected to strengthen the U.S. housing market.
Going on, 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 84 in February in comparison to 83 points in January, 86 in December, 90 in November and 30 in April (the lowest since June 2012). The metric also surpassed economists’ median forecast of 83, per a Bloomberg’s poll. Any reading above 50 is considered positive and signals at improving confidence.
Homebuilder ETFs That May Keep Gaining
In such a background, 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 an AUM of $2.21 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 - 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 $1.38 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 - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than 5.3% share. It has amassed assets worth $217.6 million. The expense ratio is 0.59% (read: Infrastructure ETFs & Stocks Up for a Rally in Biden Era).
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 represents the performance of the U.S. housing Industry. It has an AUM of $60.9 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).
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 >>