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Homebuilder Confidence Rises Most in a Decade: ETFs to Tap
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The U.S. housing sector is showing signs of improvement, with confidence among builders on the rise. Demand for homes has picked up, driven in part by slightly lower mortgage rates.
This is especially true as U.S. builder confidence has risen for the second consecutive month to the highest level since September 2022. The National Association of Home Builders/Wells Fargo gauge of builder sentiment increased to 42 in February, the largest monthly gain in 10 years. Builders in all four regions reported an increase in confidence.
Given the improving fundamentals, investors seeking to tap the space could consider homebuilder ETFs — 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) — that could be more compelling picks rather than a single stock. These products erase company-specific risks and provide a higher level of diversification while reducing volatility (see: all the Industrials ETFs here).
After climbing for most of 2022, mortgage rates have been trending downward from a peak since November as inflation is easing. Though mortgage rates surged in the past two weeks to the mid-6% range, it is still lower than the peak of 7.37% recorded in late October. A drop in rates has boosted sentiment despite the fact that homebuilders are still struggling with high construction costs and supply-chain delays.
The decrease in rates has made home ownership slightly cheaper for first-time buyers, improving affordability and encouraging people from buying homes. The Fed seems to be on a slower rate hike path this year that will make buying homes and refinancing mortgages more affordable. This, in turn, will boost activity in the market and benefit homebuilder stocks. At the latest meeting early this month, the central bank lifted its benchmark interest rate by 0.25 percentage points to 4.5-4.75% and signaled that it could be closer to pausing its rate hike plan (read: Inflation Rises the Lowest Since October 2021: ETFs to Tap).
Additionally, some major homebuilders have increased their pace in new builds for the year, including PulteGroup (PHM) and D.R. Horton (DHI).
Further, the Q4 earnings picture of the construction sector has been shaping up. This is especially true as earnings of about 86.4% of the total sector’s capitalization reported so far are up 6.5% on 9.6% revenue growth. Earnings and revenue surprise of 72.7% and 63.6%, respectively, seem to be good.
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 $1.5 billion, iShares U.S. Home Construction ETF holds a basket of 48 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 2.3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket (read: Here's Why Housing ETFs Are Up in 2023 Despite Soft Sales).
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $957.5 million and an average daily volume of 2.2 million shares. The product charges 35 bps in annual fees.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 32 well-diversified stocks in its basket, with none accounting for more than 5.4% of assets.
Invesco Dynamic Building & Construction ETF has amassed assets worth $112.5 million and sees a lower volume of roughly 6,000 shares per day on average. Expense ratio comes in at 0.57%.
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index.
Hoya Capital Housing ETF has accumulated $36.6 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 3,000 shares.
Bottom Line
Though the above-mentioned ETFs have an unfavorable Zacks ETF Rank #4 (Sell), indicating some pain in the near term, the fortune of the homebuilders seems to be turning around with declining mortgage rates and Fed’s slower rate hike.
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Homebuilder Confidence Rises Most in a Decade: ETFs to Tap
The U.S. housing sector is showing signs of improvement, with confidence among builders on the rise. Demand for homes has picked up, driven in part by slightly lower mortgage rates.
This is especially true as U.S. builder confidence has risen for the second consecutive month to the highest level since September 2022. The National Association of Home Builders/Wells Fargo gauge of builder sentiment increased to 42 in February, the largest monthly gain in 10 years. Builders in all four regions reported an increase in confidence.
Given the improving fundamentals, investors seeking to tap the space could consider homebuilder ETFs — 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) — that could be more compelling picks rather than a single stock. These products erase company-specific risks and provide a higher level of diversification while reducing volatility (see: all the Industrials ETFs here).
After climbing for most of 2022, mortgage rates have been trending downward from a peak since November as inflation is easing. Though mortgage rates surged in the past two weeks to the mid-6% range, it is still lower than the peak of 7.37% recorded in late October. A drop in rates has boosted sentiment despite the fact that homebuilders are still struggling with high construction costs and supply-chain delays.
The decrease in rates has made home ownership slightly cheaper for first-time buyers, improving affordability and encouraging people from buying homes. The Fed seems to be on a slower rate hike path this year that will make buying homes and refinancing mortgages more affordable. This, in turn, will boost activity in the market and benefit homebuilder stocks. At the latest meeting early this month, the central bank lifted its benchmark interest rate by 0.25 percentage points to 4.5-4.75% and signaled that it could be closer to pausing its rate hike plan (read: Inflation Rises the Lowest Since October 2021: ETFs to Tap).
Additionally, some major homebuilders have increased their pace in new builds for the year, including PulteGroup (PHM) and D.R. Horton (DHI).
Further, the Q4 earnings picture of the construction sector has been shaping up. This is especially true as earnings of about 86.4% of the total sector’s capitalization reported so far are up 6.5% on 9.6% revenue growth. Earnings and revenue surprise of 72.7% and 63.6%, respectively, seem to be good.
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 $1.5 billion, iShares U.S. Home Construction ETF holds a basket of 48 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 2.3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
SPDR S&P Homebuilders ETF (XHB - Free Report)
SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket (read: Here's Why Housing ETFs Are Up in 2023 Despite Soft Sales).
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $957.5 million and an average daily volume of 2.2 million shares. The product charges 35 bps in annual fees.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 32 well-diversified stocks in its basket, with none accounting for more than 5.4% of assets.
Invesco Dynamic Building & Construction ETF has amassed assets worth $112.5 million and sees a lower volume of roughly 6,000 shares per day on average. Expense ratio comes in at 0.57%.
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index.
Hoya Capital Housing ETF has accumulated $36.6 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 3,000 shares.
Bottom Line
Though the above-mentioned ETFs have an unfavorable Zacks ETF Rank #4 (Sell), indicating some pain in the near term, the fortune of the homebuilders seems to be turning around with declining mortgage rates and Fed’s slower rate hike.