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Persistently high mortgage rates and limited housing inventory continue to be major challenges for the housing sector within the economy. According to Redfin CEO Glenn Kelman, as quoted on Yahoo Finance, the only cause of any relief is that the housing conditions in the country cannot deteriorate any further.
High mortgage rates remain the prime cause of concern, increasing the cost of borrowing for potential home owners, while the same time, making potential sellers reluctant to put their homes up for sale. This has made the shortage of available homes worse and caused home prices to increase.
More Into the Data
According to the article on Yahoo Finance, mortgage rates remained consistently above the level of 7%, with the median sales price for a single-family home touching $420,846 in the month of August, to its highest ever point.
As per the Commerce Department, as quoted on Reuters, sales of new single-family homes in the United States declined more than anticipated, reporting a significant 8.7% decrease, with a seasonally adjusted annual rate of 675,000 units for the month of August.
Per Reuter, August also saw contracts for the purchase of existing homes in the U.S. declining more than projected, marking the most significant drop in almost a year. On a year-over-year basis, pending sales were down by 18.7%.
According to CNN, in August, pending home sales in the United States declined by 7.1% compared to the previous month. The pending sales index, which serves as a forward-looking indicator based on signed contracts for home purchases rather than the finalized sales recorded in existing home sales, significantly underperformed analysts' expectations of a sales drop of less than 1%.
Any Relief in the Future?
Affordability is not expected to improve unless mortgage rates decrease, which remains unlikely to happen in the coming year, as central bankers are closely monitoring inflation. The Fed has raised interest rates significantly over the past 18 months to control rising prices, leading to mortgage rates reaching their highest levels in two decades.
According to the CME FedWatch tool, as per Yahoo Finance, the markets are estimating a 44% chance that interest rates will remain above 5% by the end of 2024. In contrast, according to Yahoo Finance, Redfin anticipates a slight decrease in the 30-year mortgage rate to approximately 6% by the end of 2023.
ETFs in Focus
The increased probability of the Fed remaining hawkish for longer, resulting in higher mortgage rates, continues to cast a shadow over the housing market in the United States. Below, we highlight a few housing ETFs worth monitoring for market insights.
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 50 securities. The fund has an asset base of $1.99 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has a Zacks ETF Rank #2 with a High risk outlook. The fund has lost about 8.81% over the past month (as of Sep 29).
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 36 securities. The fund has an asset base of $1.13 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has a Zacks ETF Rank #2 (Buy) with a High risk outlook. The fund has lost about 7.6% over the past month (as of Sep 29).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 32 securities. The fund has an asset base of $227.51 million and charges an annual fee of 0.60%.
Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #2 with a High risk outlook. The fund has lost about 9.22% over the past month (as of Sep 29).
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 102 securities. The fund has an asset base of $33.57 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has a Zacks ETF Rank #3 (Hold). The fund has lost about 7.82% over the past month (as of Sep 29).
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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How Rising Rates Are Impacting Housing ETFs
Persistently high mortgage rates and limited housing inventory continue to be major challenges for the housing sector within the economy. According to Redfin CEO Glenn Kelman, as quoted on Yahoo Finance, the only cause of any relief is that the housing conditions in the country cannot deteriorate any further.
High mortgage rates remain the prime cause of concern, increasing the cost of borrowing for potential home owners, while the same time, making potential sellers reluctant to put their homes up for sale. This has made the shortage of available homes worse and caused home prices to increase.
More Into the Data
According to the article on Yahoo Finance, mortgage rates remained consistently above the level of 7%, with the median sales price for a single-family home touching $420,846 in the month of August, to its highest ever point.
As per the Commerce Department, as quoted on Reuters, sales of new single-family homes in the United States declined more than anticipated, reporting a significant 8.7% decrease, with a seasonally adjusted annual rate of 675,000 units for the month of August.
Per Reuter, August also saw contracts for the purchase of existing homes in the U.S. declining more than projected, marking the most significant drop in almost a year. On a year-over-year basis, pending sales were down by 18.7%.
According to CNN, in August, pending home sales in the United States declined by 7.1% compared to the previous month. The pending sales index, which serves as a forward-looking indicator based on signed contracts for home purchases rather than the finalized sales recorded in existing home sales, significantly underperformed analysts' expectations of a sales drop of less than 1%.
Any Relief in the Future?
Affordability is not expected to improve unless mortgage rates decrease, which remains unlikely to happen in the coming year, as central bankers are closely monitoring inflation. The Fed has raised interest rates significantly over the past 18 months to control rising prices, leading to mortgage rates reaching their highest levels in two decades.
According to the CME FedWatch tool, as per Yahoo Finance, the markets are estimating a 44% chance that interest rates will remain above 5% by the end of 2024. In contrast, according to Yahoo Finance, Redfin anticipates a slight decrease in the 30-year mortgage rate to approximately 6% by the end of 2023.
ETFs in Focus
The increased probability of the Fed remaining hawkish for longer, resulting in higher mortgage rates, continues to cast a shadow over the housing market in the United States. Below, we highlight a few housing ETFs worth monitoring for market insights.
iShares U.S. Home Construction ETF (ITB - Free Report)
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 50 securities. The fund has an asset base of $1.99 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has a Zacks ETF Rank #2 with a High risk outlook. The fund has lost about 8.81% over the past month (as of Sep 29).
SPDR S&P Homebuilders ETF (XHB - Free Report)
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 36 securities. The fund has an asset base of $1.13 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has a Zacks ETF Rank #2 (Buy) with a High risk outlook. The fund has lost about 7.6% over the past month (as of Sep 29).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 32 securities. The fund has an asset base of $227.51 million and charges an annual fee of 0.60%.
Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #2 with a High risk outlook. The fund has lost about 9.22% over the past month (as of Sep 29).
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 102 securities. The fund has an asset base of $33.57 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has a Zacks ETF Rank #3 (Hold). The fund has lost about 7.82% over the past month (as of Sep 29).
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)