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Housing ETFs to Shine on Upbeat US New Home Sales Data

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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 4.3% in January to a seasonally-adjusted annual rate of 923,000 units. This compares favorably with December’s sales pace that was revised upward to 885,000 units from the previously-reported 842,000 units. Moreover, the metric beat economists’ forecast of a 2.1% rise to a rate of 855,000 units in January, per a Reuters poll. New home sales rose 19.3% in January 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 climbed in the South, Midwest and West but declined in the Northeast in January. Notably, there was a 5.3% year-over-year rise in median new house price to $346,400 in January, per a Reuters article. Meanwhile, the number of new homes on market in January rose to 307,000 from 299,000 in December.

Will US Housing Market Momentum Stay?

The U.S. housing sector pleased investors with impressive performance amid the tough pandemic times. However, it seems as if the space is now being rattled by 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 restrained inventory conditions that are delaying delivery times, largely due to land shortages, skilled labor deficiencies along with rising material costs. These factors are affecting affordability as prices of existing and new homes are soaring. In fact, 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, per the National Association of Realtors’ report.

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.

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.

Thus, Joel Naroff, chief economist at Naroff Economics in Holland has commented that “Strong demand, a shortage of supply and rapidly rising prices is the perfect combination of factors that should convince builders that now remains a really good time to get the shovels in the ground,” according to a Reuters article.

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 $2.12 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: Guide to Homebuilding 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 $1.34 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 38 stocks, each accounting for less than a 5.16% share. It has amassed assets worth $286.9 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 $59.6 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).

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