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Could Housing ETFs Spring Up in the Key Selling Season?
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The housing market, which has been very strong for about a year, is entering an even better spell. Winter months normally remain subdued for home building as the weather is too wet in the south and severely chilly in the north.
However, the housing market has now entered the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar starts.
Per experts, about 40% of home sales take place between April and July in the United States. This year, buyers will try to dip their toes into the housing market depending on the rate scenario. Higher mortgage rates have weighed on the home sales in the past one year.
While rates dived a little to start 2023 on hopes of slowing Fed rate hike momentum, rates surged back to over 7% as inflation fears drive yields higher. The average rate on the 30-year fixed mortgage jumped back over 7% Thursday, rising to 7.1%, according to Mortgage News Daily, quoted on CNBC. By mid-January, rates were hovering around 6%, leading to a solid spike in buyers signing contracts on existing homes.
What’s Good about the Sector?
Increase in Builders’ Confidence
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 (read: Homebuilder Confidence Rises Most in a Decade: ETFs to Tap).
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.
Softening in Home Price Inflation
The median existing house price increased 1.3% from a year earlier to $359,000 in January as homes available on the market for more than two months saw about 10% decline in purchase price from the original list price, per NAR chief economist Lawrence Yun, as quoted on Yahoo Finance.
The increase in existing house prices was the smallest annual gain since February 2012. First-time buyers made up for 31% of sales, up from 27% a year ago. All-cash sales made up 29% of transactions compared to 27% a year ago.
What Lies Ahead?
It is hard for the housing industry to spurt back to the normal shape this year. It all depends on U.S. economic data points and the Fed’s rate hike momentum. If energy prices remain moderate, supply chain improves and food inflation does not go up massively, total inflation may come down. This would slower Fed rate hike momentum and the house market would try to bounce back with all force (read: Old Economy Investing is Back: Sector ETFs to Win).
ETFs in Focus
Against this backdrop, investors must be interested to know about what ETFs are available in the market to tap the housing market in a basket form. iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) are available at investors’ hand, if they want to follow the sector. All three ETFs have a Zacks Rank #4 (Sell).
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Could Housing ETFs Spring Up in the Key Selling Season?
The housing market, which has been very strong for about a year, is entering an even better spell. Winter months normally remain subdued for home building as the weather is too wet in the south and severely chilly in the north.
However, the housing market has now entered the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar starts.
Per experts, about 40% of home sales take place between April and July in the United States. This year, buyers will try to dip their toes into the housing market depending on the rate scenario. Higher mortgage rates have weighed on the home sales in the past one year.
While rates dived a little to start 2023 on hopes of slowing Fed rate hike momentum, rates surged back to over 7% as inflation fears drive yields higher. The average rate on the 30-year fixed mortgage jumped back over 7% Thursday, rising to 7.1%, according to Mortgage News Daily, quoted on CNBC. By mid-January, rates were hovering around 6%, leading to a solid spike in buyers signing contracts on existing homes.
What’s Good about the Sector?
Increase in Builders’ Confidence
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 (read: Homebuilder Confidence Rises Most in a Decade: ETFs to Tap).
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.
Softening in Home Price Inflation
The median existing house price increased 1.3% from a year earlier to $359,000 in January as homes available on the market for more than two months saw about 10% decline in purchase price from the original list price, per NAR chief economist Lawrence Yun, as quoted on Yahoo Finance.
The increase in existing house prices was the smallest annual gain since February 2012. First-time buyers made up for 31% of sales, up from 27% a year ago. All-cash sales made up 29% of transactions compared to 27% a year ago.
What Lies Ahead?
It is hard for the housing industry to spurt back to the normal shape this year. It all depends on U.S. economic data points and the Fed’s rate hike momentum. If energy prices remain moderate, supply chain improves and food inflation does not go up massively, total inflation may come down. This would slower Fed rate hike momentum and the house market would try to bounce back with all force (read: Old Economy Investing is Back: Sector ETFs to Win).
ETFs in Focus
Against this backdrop, investors must be interested to know about what ETFs are available in the market to tap the housing market in a basket form. iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) are available at investors’ hand, if they want to follow the sector. All three ETFs have a Zacks Rank #4 (Sell).