Sales of new single-family homes dropped to an annualized rate of 676,000, 6.6% below May’s rate of 724,000 and 19.4% below the June 2020 level of 839,000. Economists polled by Reuters had forecast new home sales, which account for about 10% of U.S. home sales, rising 3% to a rate of 800,000 units in June.

Sales of new U.S. single-family homes fell to a 14-month low in June and sales in the prior month were weaker than initially estimated. Expensive lumber and shortages of other building materials due to supply chain issues amid lockdowns are deemed to have hurt the housing business. Labor and building lots are also in short supply.

The third successive months of decline in sales reported by the Commerce Department followed news last week that permits for future homebuilding fell to a nine-month low in June while home resales bounced back modestly. Higher production costs are forcing builders to cut back on building inventory, causing supply crunch and boosting home prices which kept first-time buyers away from the market.

Is It a Worry for Homebuilding Shares?

Since new home sales make up a small share of the market, it seems to be less concerning at the current level. Sales of existing homes in the United States increased for the first time in June in five months, as more houses were available on the market.

Existing home sales increased 1.4% to a seasonally adjusted annual rate of 5.86 million units last month, slightly missing economists’ forecast of a rise to a rate of 5.90 million units in June. Home resales, which make up for the major part of the U.S. housing market, rose 22.9% on a year-on-year basis (read: What Awaits Housing ETFs on Upbeat US Existing Home Sales Data?).

The median existing house price increased 23.4% from a year ago to $363,300 in June. Sales were especially made in the upper end of the market. In fact, U.S. home prices rose in May at the fastest clip in nearly 17 years. Though higher home prices could hurt demand as consumers' complaints about rising home prices was at an all-time high in early July (per the University of Michigan's survey), one silver lining is low interest rates.

With the U.S. benchmark treasury yield falling to below the -1.30% level in recent days, there are chances that mortgage rates would fall and the number of applications for home mortgages may go up thanks to a likely increase in refinancing activity and a probable uptick in purchase activity. Post-pandemic “Suburban Revival” could also provide the sector the much-needed support.

"We continue to see ebbs and flows as housing demand remains strong but for-sale inventory remains low," said Joel Kan, MBA's associate vice president of economic and industry forecasting in mid-July. "However, lower rates may be helping some home buyers close on their purchases, especially first-time home buyers," as quoted on Reuters.

ETFs in Focus  

Against this backdrop, below we highlight a few ETFs that should be watched in the coming days. These ETFs are iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report) , SPDR S&P Homebuilders ETF (XHB Quick QuoteXHB - Free Report) and Invesco Dynamic Building & Construction ETF (PKB Quick QuotePKB - Free Report) and Hoya Capital Housing ETF (HOMZ Quick QuoteHOMZ - Free Report) .