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Will ETFs Suffer as US Homebuilder Confidence Dips in April?
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The U.S. housing sector continues to grapple with supply-chain disruptions of lumber and building materials and the rising borrowing costs as a result of the Fed’s monetary policy tightening move. This resulted in a drop in the homebuilder sentiment for the fourth straight month and also slipped to its lowest level since last September.
According to the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped two points to 77 in April this year from 79 in March, 81 in February and 83 in January. However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index declined two points to 85 in April. The metric measuring traffic of prospective buyers saw a six-point fall to 60. Sales expectations for the next six months jumped three points to 73, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast increased by a point to 72. However, the South and Midwest Index declined two and three points, respectively, to 82 and 69, respectively. Moreover, the West lost a point to 89, per the release.
Going by the press release, NAHB Chairman Jerry Konter reportedly said: “Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market. Policymakers must take proactive steps to fix supply chain issues that will reduce the cost of development, stem the rise in home prices and allow builders to increase production.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector is consistently grappling with the rising softwood lumber, material and labor costs. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs. These factors are affecting the affordability as prices of existing and new homes are soaring.
The rising costs and increasing interest rates will dampen the favorable demand scenario arising from low housing inventory and favorable demographics. Market participants expect the record-low housing supply levels to continue to strengthen the homebuilding space in 2022 (per a Reuters article). In fact, the backlog of houses that have been granted permission for construction but are yet to begin rose 2.9% to an all-time high level of 280,000 units in March.
Increasing home prices and interest rates are weighing on housing affordability. According to data from mortgage finance agency Freddie Mac, the 30-year fixed-rate mortgage averaged 5.0% during the week ending Apr 14 (the highest since February 2011), per a Reuters article.
In order to control hot inflation readings, the Federal Reserve approved a 0.25 percentage point rate hike (the first increase since December 2018) on Mar 16. Following the hike, the benchmark interest rates fall into a range of 0.25-0.5%. In fact, the Federal Reserve announced plans to increase interest rates six times this year, bringing to a consensus funds rate of 1.9% by 2022-end.
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $1.47 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) as annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: 5 ETFs to Make the Most of Red-Hot 40-Year High Inflation).
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $1.18 billion. SPDR S&P Homebuilders ETF charges 35 bps of annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: Tough Time for Homebuilding ETFs Ahead?).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than 5.9% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines and airports.
Invesco Dynamic Building & Construction ETF amassed assets worth $153.6 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: 6 Solid Sector ETFs to Buy Now).
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $49.3 million. The fund charges 30 bps as annual fees. It carries a Zacks ETF Rank #2 (see all the Materials ETFs here).
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Will ETFs Suffer as US Homebuilder Confidence Dips in April?
The U.S. housing sector continues to grapple with supply-chain disruptions of lumber and building materials and the rising borrowing costs as a result of the Fed’s monetary policy tightening move. This resulted in a drop in the homebuilder sentiment for the fourth straight month and also slipped to its lowest level since last September.
According to the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped two points to 77 in April this year from 79 in March, 81 in February and 83 in January. However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index declined two points to 85 in April. The metric measuring traffic of prospective buyers saw a six-point fall to 60. Sales expectations for the next six months jumped three points to 73, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast increased by a point to 72. However, the South and Midwest Index declined two and three points, respectively, to 82 and 69, respectively. Moreover, the West lost a point to 89, per the release.
Going by the press release, NAHB Chairman Jerry Konter reportedly said: “Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market. Policymakers must take proactive steps to fix supply chain issues that will reduce the cost of development, stem the rise in home prices and allow builders to increase production.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector is consistently grappling with the rising softwood lumber, material and labor costs. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs. These factors are affecting the affordability as prices of existing and new homes are soaring.
The rising costs and increasing interest rates will dampen the favorable demand scenario arising from low housing inventory and favorable demographics. Market participants expect the record-low housing supply levels to continue to strengthen the homebuilding space in 2022 (per a Reuters article). In fact, the backlog of houses that have been granted permission for construction but are yet to begin rose 2.9% to an all-time high level of 280,000 units in March.
Increasing home prices and interest rates are weighing on housing affordability. According to data from mortgage finance agency Freddie Mac, the 30-year fixed-rate mortgage averaged 5.0% during the week ending Apr 14 (the highest since February 2011), per a Reuters article.
In order to control hot inflation readings, the Federal Reserve approved a 0.25 percentage point rate hike (the first increase since December 2018) on Mar 16. Following the hike, the benchmark interest rates fall into a range of 0.25-0.5%. In fact, the Federal Reserve announced plans to increase interest rates six times this year, bringing to a consensus funds rate of 1.9% by 2022-end.
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF (ITB - Free Report)
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $1.47 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) as annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: 5 ETFs to Make the Most of Red-Hot 40-Year High Inflation).
SPDR S&P Homebuilders ETF (XHB - Free Report)
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $1.18 billion. SPDR S&P Homebuilders ETF charges 35 bps of annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: Tough Time for Homebuilding ETFs Ahead?).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than 5.9% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines and airports.
Invesco Dynamic Building & Construction ETF amassed assets worth $153.6 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: 6 Solid Sector ETFs to Buy Now).
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $49.3 million. The fund charges 30 bps as annual fees. It carries a Zacks ETF Rank #2 (see all the Materials ETFs here).