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Housing ETFs to Shine Bright as New Home Sales Rise in March
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The streak of upbeat U.S. housing data continues to impress investors. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales climbed 20.7% to a seasonally-adjusted annual rate of 1.021 million units in March, touching the highest level since August 2006. Moreover, the metric beat economists’ forecast of a rise to 886,000 units in March, per a Reuters poll.
New home sales rose 66.8% in March year over year, gaining from a limited inventory of previously-owned homes. 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 Northeast regions but declined in the West in March. Notably, there was a 0.8% year-over-year rise in median new house price to $330,800 in March, per a Reuters article. However, the number of new homes on market in March remained flat at 307,000. Going by last month’s pace, it might take 3.6 months to clear the supply, declining from 4.4 months in February.
Present U.S. Housing Market Conditions
The U.S. housing sector has pleased investors with impressive performance amid the tough pandemic times. However, it seems the space is now facing the brunt of rising lumber prices.
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 virus outbreak have led to the rise in concrete, metal products, appliances and other expenses, as mentioned in a FOX Business article. Notably, there was an 83.4% year-over-year rise in March in prices of softwood lumber, which is used for constructing frames and trusses of houses, per a Reuters article. Moreover, there was a sharp rise in prices of plywood. These factors are affecting affordability as prices for existing and new homes are soaring.
Per an Institute for Supply Management, congestion in the port on the West Coast as well as winter chills in Canada which has shut mills along with limited truck shipping was also responsible for the constrained supplies that were leading to higher prices of building materials, per a Reuters article.
Also, low employment levels and rising new coronavirus cases might impede momentum of the U.S. housing market.
Thus, commenting on the market conditions, Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York, said that "inventories remain tight and while that should be a positive for home building activity, a lack of availability will likely remain a headwind for sales in the near term," per a Reuters article.
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.
Housing ETFs That Can Shine Bright
Against such a backdrop, here are a few housing ETFs that might gain due to the optimistic 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 $2.81 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 $2.11 billion and 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 31 stocks, each accounting for less than a 5.83% share. It has amassed assets worth $278.7 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 $67.6 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).
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Housing ETFs to Shine Bright as New Home Sales Rise in March
The streak of upbeat U.S. housing data continues to impress investors. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales climbed 20.7% to a seasonally-adjusted annual rate of 1.021 million units in March, touching the highest level since August 2006. Moreover, the metric beat economists’ forecast of a rise to 886,000 units in March, per a Reuters poll.
New home sales rose 66.8% in March year over year, gaining from a limited inventory of previously-owned homes. 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 Northeast regions but declined in the West in March. Notably, there was a 0.8% year-over-year rise in median new house price to $330,800 in March, per a Reuters article. However, the number of new homes on market in March remained flat at 307,000. Going by last month’s pace, it might take 3.6 months to clear the supply, declining from 4.4 months in February.
Present U.S. Housing Market Conditions
The U.S. housing sector has pleased investors with impressive performance amid the tough pandemic times. However, it seems the space is now facing the brunt of rising lumber prices.
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 virus outbreak have led to the rise in concrete, metal products, appliances and other expenses, as mentioned in a FOX Business article. Notably, there was an 83.4% year-over-year rise in March in prices of softwood lumber, which is used for constructing frames and trusses of houses, per a Reuters article. Moreover, there was a sharp rise in prices of plywood. These factors are affecting affordability as prices for existing and new homes are soaring.
Per an Institute for Supply Management, congestion in the port on the West Coast as well as winter chills in Canada which has shut mills along with limited truck shipping was also responsible for the constrained supplies that were leading to higher prices of building materials, per a Reuters article.
Also, low employment levels and rising new coronavirus cases might impede momentum of the U.S. housing market.
Thus, commenting on the market conditions, Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York, said that "inventories remain tight and while that should be a positive for home building activity, a lack of availability will likely remain a headwind for sales in the near term," per a Reuters article.
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.
Housing ETFs That Can Shine Bright
Against such a backdrop, here are a few housing ETFs that might gain due to the optimistic 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 $2.81 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 $2.11 billion and 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 31 stocks, each accounting for less than a 5.83% share. It has amassed assets worth $278.7 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 $67.6 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 >>