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Will Housing ETFs Gain on Rising Existing Home Sales?

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The latest existing home sales data has managed to please investors. Per the National Association of Realtors’ (NAR) report, there was a 0.6% month-over-month rise in existing homes sales to a seasonally-adjusted annual rate of 6.69 million units in January. Further, existing home sales rose 23.7% year over year.

First-time buyers accounted for 33% of sales in January, rising from 31% in December 2020 and 32% in the year-ago period. Existing homes sales increased in the Midwest and South by 1.9% and 3.2% month over month, respectively, in January. However, sales in the Northeast and West declined a respective 2.2% and 4.4% from December’s figure.

Commenting on the housing market scenario, Lawrence Yun, NAR’s chief economist, reportedly said, “home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market. Sales easily could have been even 20% higher if there had been more inventory and more choices.”

Moreover, the median existing-home price for all housing types was $303,900, up 14.1% year over year in January, marking the 107th consecutive month of year-over-year gains.

Current U.S. Housing Market Scenario

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 $2.20 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 $1.44 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 a 5.56% share. It has amassed assets worth $216.3 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 $60.8 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).

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