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Low mortgage rates and shift to low-populated suburbs continue to boost the U.S. housing space. Demand for homes in the suburbs is still strong and fears of the delta variant continue to remain a major factor behind the relocation.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported on Aug 24 that new home sales rose 1%, at a seasonally adjusted annual rate of 708,000 in July. The figure is higher than consensus estimate of 692,000, while June’s sales were upwardly revised to 701,000. New home sales declined 27.2% on a year-on-year basis due to high raw material costs and land & labor shortage. Price of a median new house soared 18.4% from a year earlier to a record $390,500 in July.
On Aug 23, the National Association of Realtors reported that existing-home sales rose 2% to 5.99 million in July. There has been no decline in sales in any region and June’s sales have been revised slightly upward to 5.87 million. Existing single-family homes, townhomes, condominiums, and co-ops sales were up 2% last month, with first-time buyers accounting for 30% of sales.
The report also stated that total housing inventory at the end of July grew 7.3% in July, totaling 1.32 million units. The Northeast recorded the highest sales, reflecting a 12.1% rise, followed by Midwest and West sales increases of 3.8% and 3.3%, respectively. Meanwhile, South witnessed a 1.2% rise in existing home sales.
Supply-side constraints continue to push construction costs and home prices higher. In fact, housing starts stumbled in July, declining 7%. Builders are taking longer to complete houses due to expensive raw materials and land & labor shortage, leading to a big increase in new housing inventory. Though lumber prices have slipped from the record high of $1,711 per thousand board feet in May, prices remain a constraint for builders.
On the brighter side, demand for homes stay elevated on the historically-low mortgage rate. The 30-year, conventional, fixed-rate mortgage averaged 2.87% in July, per Freddie Mac. For the week ending Aug 19, the 30-year mortgage rate stood at 2.86%.
4 Funds to Pick
The U.S. housing sector continues to rally despite the supply-side constraints. Demand for new homes remains strong. However, high prices and backlogs in construction might temper sales in the upcoming months. Hence, we have shortlisted four Zacks Mutual Fund Rank #1 (Strong Buy) mutual funds, which have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily the reasons for parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Real Estate Investment Portfolio (FRESX - Free Report) fund aims for above-average income and long-term capital growth, which is consistent with reasonable investment risk. This non-diversified fund invests primarily in common stocks. The majority of FRESX’s assets are invested in securities of companies, principally engaged in the real estate industry and other real estate-related investments.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FRESX has an annual expense ratio of 0.74% versus the category average of 1.08%. Specifically, the fund has returned 11.5% and 6.3% over the past three and five years, respectively.
MFS Global Real Estate Fund Class R6 (MGLRX - Free Report) looks for total returns. The fund invests majority of assets in U.S. equity securities and foreign real estate-related investments of any size.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
MGLRX has an annual expense ratio of 0.90%, which is below the category average of 1.21%. Specifically, the fund has returned 13.5% and 9.5% over the past three and five years, respectively.
Neuberger Berman Real Estate Fund Class R6 (NRREX - Free Report) aims for total return. Additionally, the fund gives importance to capital appreciation and current income. Majority of this non-diversified fund’s assets are invested in equity securities of real estate investment trusts and real estate companies.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
NRREX has an annual expense ratio of 0.76%, which is below the category average of 1.08%. Specifically, the fund has returned 16.3% and 9.9% over the past three and five years, respectively.
Fidelity Advisor Real Estate Income Fund Class A (FRINX - Free Report) aims for higher-than-average income. As a secondary objective, the fund seeks capital growth. FRINX invests majority of its assets in common stocks of REITs as well as securities of companies principally engaged in the real estate industry and other real estate-related investments.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FRINX has an annual expense ratio of 1.01%, which is below the category average of 1.08%. Specifically, the fund has returned 9.1% and 6.9% over the past three and five years, respectively.
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Tap the US Housing Space Boom With These 4 Funds
Low mortgage rates and shift to low-populated suburbs continue to boost the U.S. housing space. Demand for homes in the suburbs is still strong and fears of the delta variant continue to remain a major factor behind the relocation.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported on Aug 24 that new home sales rose 1%, at a seasonally adjusted annual rate of 708,000 in July. The figure is higher than consensus estimate of 692,000, while June’s sales were upwardly revised to 701,000. New home sales declined 27.2% on a year-on-year basis due to high raw material costs and land & labor shortage. Price of a median new house soared 18.4% from a year earlier to a record $390,500 in July.
On Aug 23, the National Association of Realtors reported that existing-home sales rose 2% to 5.99 million in July. There has been no decline in sales in any region and June’s sales have been revised slightly upward to 5.87 million. Existing single-family homes, townhomes, condominiums, and co-ops sales were up 2% last month, with first-time buyers accounting for 30% of sales.
The report also stated that total housing inventory at the end of July grew 7.3% in July, totaling 1.32 million units. The Northeast recorded the highest sales, reflecting a 12.1% rise, followed by Midwest and West sales increases of 3.8% and 3.3%, respectively. Meanwhile, South witnessed a 1.2% rise in existing home sales.
Low Mortgage Rates Counter Supply-Side Constraints
Supply-side constraints continue to push construction costs and home prices higher. In fact, housing starts stumbled in July, declining 7%. Builders are taking longer to complete houses due to expensive raw materials and land & labor shortage, leading to a big increase in new housing inventory. Though lumber prices have slipped from the record high of $1,711 per thousand board feet in May, prices remain a constraint for builders.
On the brighter side, demand for homes stay elevated on the historically-low mortgage rate. The 30-year, conventional, fixed-rate mortgage averaged 2.87% in July, per Freddie Mac. For the week ending Aug 19, the 30-year mortgage rate stood at 2.86%.
4 Funds to Pick
The U.S. housing sector continues to rally despite the supply-side constraints. Demand for new homes remains strong. However, high prices and backlogs in construction might temper sales in the upcoming months. Hence, we have shortlisted four Zacks Mutual Fund Rank #1 (Strong Buy) mutual funds, which have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily the reasons for parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Real Estate Investment Portfolio (FRESX - Free Report) fund aims for above-average income and long-term capital growth, which is consistent with reasonable investment risk. This non-diversified fund invests primarily in common stocks. The majority of FRESX’s assets are invested in securities of companies, principally engaged in the real estate industry and other real estate-related investments.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FRESX has an annual expense ratio of 0.74% versus the category average of 1.08%. Specifically, the fund has returned 11.5% and 6.3% over the past three and five years, respectively.
MFS Global Real Estate Fund Class R6 (MGLRX - Free Report) looks for total returns. The fund invests majority of assets in U.S. equity securities and foreign real estate-related investments of any size.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
MGLRX has an annual expense ratio of 0.90%, which is below the category average of 1.21%. Specifically, the fund has returned 13.5% and 9.5% over the past three and five years, respectively.
Neuberger Berman Real Estate Fund Class R6 (NRREX - Free Report) aims for total return. Additionally, the fund gives importance to capital appreciation and current income. Majority of this non-diversified fund’s assets are invested in equity securities of real estate investment trusts and real estate companies.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
NRREX has an annual expense ratio of 0.76%, which is below the category average of 1.08%. Specifically, the fund has returned 16.3% and 9.9% over the past three and five years, respectively.
Fidelity Advisor Real Estate Income Fund Class A (FRINX - Free Report) aims for higher-than-average income. As a secondary objective, the fund seeks capital growth. FRINX invests majority of its assets in common stocks of REITs as well as securities of companies principally engaged in the real estate industry and other real estate-related investments.
This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FRINX has an annual expense ratio of 1.01%, which is below the category average of 1.08%. Specifically, the fund has returned 9.1% and 6.9% over the past three and five years, respectively.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>