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Will Housing ETFs Gain as US Homebuilder Confidence Rises?
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The latest U.S. housing sector data highlights that growing demand is boosting the homebuilder confidence despite soaring softwood lumber prices and other material and labor costs. 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 for April, in comparison to 82 in March, 84 in February, 83 points in January and 30 in April (the lowest since June 2012). However, the reading looks strong as any reading above 50 signals at improving confidence.
Notably, the current sales conditions index rose a point to 88 in April. The metric measuring traffic of prospective buyers rose three points to 75. Meanwhile, sales expectations for the next six months slipped a couple of points to 81, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast increased six points to 86. Moreover, the South Index rose a point to 83. Also, the Western Index remained steady at 90. Meanwhile, the Midwest slid two points to 78, per the release.
Going by the press release, NAHB chief economist Robert Dietz reportedly commented, “While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be unwavering for now as buyer traffic reached its highest level since November. NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.”
Current US Housing Market Scenario
Rising softwood lumber, material and labor costs continue to be a major hurdle for homebuilders. The supply chain disturbances caused by the lockdown to contain the coronavirus outbreak have also led to the rise in concrete, metal products, appliances and other expenses, as mentioned in a FOX Business article. These factors are affecting affordability as prices for existing and new homes are soaring.
Also, low employment levels and rising new coronavirus cases might impede momentum of the U.S. housing market.
Meanwhile, the housing market has steadily benefited from changing demographical preferences of a large chunk of population as people increasingly looked for work-from-home-friendly properties. Notably, individuals were shifting from city centers to suburbs and other low-density areas looking for spacious accommodations for home offices and schools, per the sources.
Commenting on the current market conditions, NAHB Chairman Chuck Fowke has reportedly said that “Despite strong buyer traffic, builders continue to face challenges to add much needed housing supply to the market. The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials. Though builders are seeking to keep home prices affordable in a market in need of more inventory, policymakers must find ways to increase the supply of building materials as the economy runs hot in 2021.”
Homebuilder ETFs That Might Gain
Against such a backdrop, here are a few housing ETFs that might struggle due to the tough 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 AUM of $2.70 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: 4 Sector ETFs at All-Time Highs).
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 AUM of $1.88 billion. The fund charges 35 bps in annual fees (read: 4 ETF Zones Set to Bloom in a Booming Job Market).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 32 stocks, each accounting for less than a 5.71% share. It has amassed assets worth $269.7 million. The expense ratio is 0.59% (read: ETFs to Win on Biden's Infrastructure Plan).
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 AUM of $64.2 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).
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Will Housing ETFs Gain as US Homebuilder Confidence Rises?
The latest U.S. housing sector data highlights that growing demand is boosting the homebuilder confidence despite soaring softwood lumber prices and other material and labor costs. 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 for April, in comparison to 82 in March, 84 in February, 83 points in January and 30 in April (the lowest since June 2012). However, the reading looks strong as any reading above 50 signals at improving confidence.
Notably, the current sales conditions index rose a point to 88 in April. The metric measuring traffic of prospective buyers rose three points to 75. Meanwhile, sales expectations for the next six months slipped a couple of points to 81, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast increased six points to 86. Moreover, the South Index rose a point to 83. Also, the Western Index remained steady at 90. Meanwhile, the Midwest slid two points to 78, per the release.
Going by the press release, NAHB chief economist Robert Dietz reportedly commented, “While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be unwavering for now as buyer traffic reached its highest level since November. NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.”
Current US Housing Market Scenario
Rising softwood lumber, material and labor costs continue to be a major hurdle for homebuilders. The supply chain disturbances caused by the lockdown to contain the coronavirus outbreak have also led to the rise in concrete, metal products, appliances and other expenses, as mentioned in a FOX Business article. These factors are affecting affordability as prices for existing and new homes are soaring.
Also, low employment levels and rising new coronavirus cases might impede momentum of the U.S. housing market.
Meanwhile, the housing market has steadily benefited from changing demographical preferences of a large chunk of population as people increasingly looked for work-from-home-friendly properties. Notably, individuals were shifting from city centers to suburbs and other low-density areas looking for spacious accommodations for home offices and schools, per the sources.
Commenting on the current market conditions, NAHB Chairman Chuck Fowke has reportedly said that “Despite strong buyer traffic, builders continue to face challenges to add much needed housing supply to the market. The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials. Though builders are seeking to keep home prices affordable in a market in need of more inventory, policymakers must find ways to increase the supply of building materials as the economy runs hot in 2021.”
Homebuilder ETFs That Might Gain
Against such a backdrop, here are a few housing ETFs that might struggle due to the tough 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 AUM of $2.70 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: 4 Sector ETFs at All-Time Highs).
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 AUM of $1.88 billion. The fund charges 35 bps in annual fees (read: 4 ETF Zones Set to Bloom in a Booming Job Market).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 32 stocks, each accounting for less than a 5.71% share. It has amassed assets worth $269.7 million. The expense ratio is 0.59% (read: ETFs to Win on Biden's Infrastructure Plan).
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 AUM of $64.2 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 >>