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The U.S. housing sector has performed well in 2023, with leading homebuilders having a banner year. Lennar Corp. (LEN - Free Report) and DR Horton (DHI - Free Report) have gained more than 60% each this year, while PulteGroup (PHM - Free Report) is up about 130%. This robust growth indicates investor confidence in these companies and the homebuilding sector at large.
iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Invesco Building & Construction ETF (PKB - Free Report) are up 65.8%, 56.5% and 51.7%, respectively, so far this year.
The major catalyst is the shortage of inventory in the resale market, which has boosted the demand for new homes. Recent mortgage rate reductions and signals from the Federal Reserve about upcoming rate cuts have reignited the housing market. The homebuilding sector, known for its sensitivity to interest rate changes, is thus poised for potentially greater gains (read: Sector ETFs to Benefit From Fed Rate Cut Talks).
Mortgage rates fell below 7% for the first time since August last week and are hovering at the lowest level since July, reigniting some life in the housing market. The dip in mortgage rates has prompted an increase in prospective buyers, leading to an uptick in sales. With the decline in mortgage rates, new U.S. home construction roared back to life in November. Housing starts jumped to the highest level since May as the low inventory of existing homes on the market has created an opportunity for new construction.
The Fed has also penciled in three rate cuts for 2024. As a result, builders are getting more bullish on their outlook. This is especially true as homebuilder sentiment improved in December for the first time in five months, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
Moreover, homebuilders are currently well placed, belonging to a top-ranked Zacks industry (placed in the top 21% of 250+ industries), suggesting a strong outlook. The combination of tight supply and improved demand against the backdrop of declining interest rates supports huge optimism in the sector (read: ETF Market Outlook & Investing Strategies for 2024).
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 $2.4 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 40 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk.
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.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $1.7 billion and an average daily volume of 4 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: Falling Mortgage Rates Boost Housing ETFs).
Invesco Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 32 well-diversified stocks in its basket, with none accounting for more than 5.1% of the assets.
Invesco Building & Construction ETF has amassed assets worth $246.1 million and sees a lower volume of roughly 17,000 shares per day on average. The expense ratio comes in at 0.62%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #3 with a High risk outlook.
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Homebuilder ETFs 2024 Prospects Appear Bright
The U.S. housing sector has performed well in 2023, with leading homebuilders having a banner year. Lennar Corp. (LEN - Free Report) and DR Horton (DHI - Free Report) have gained more than 60% each this year, while PulteGroup (PHM - Free Report) is up about 130%. This robust growth indicates investor confidence in these companies and the homebuilding sector at large.
iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Invesco Building & Construction ETF (PKB - Free Report) are up 65.8%, 56.5% and 51.7%, respectively, so far this year.
The major catalyst is the shortage of inventory in the resale market, which has boosted the demand for new homes. Recent mortgage rate reductions and signals from the Federal Reserve about upcoming rate cuts have reignited the housing market. The homebuilding sector, known for its sensitivity to interest rate changes, is thus poised for potentially greater gains (read: Sector ETFs to Benefit From Fed Rate Cut Talks).
Mortgage rates fell below 7% for the first time since August last week and are hovering at the lowest level since July, reigniting some life in the housing market. The dip in mortgage rates has prompted an increase in prospective buyers, leading to an uptick in sales. With the decline in mortgage rates, new U.S. home construction roared back to life in November. Housing starts jumped to the highest level since May as the low inventory of existing homes on the market has created an opportunity for new construction.
The Fed has also penciled in three rate cuts for 2024. As a result, builders are getting more bullish on their outlook. This is especially true as homebuilder sentiment improved in December for the first time in five months, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
Moreover, homebuilders are currently well placed, belonging to a top-ranked Zacks industry (placed in the top 21% of 250+ industries), suggesting a strong outlook. The combination of tight supply and improved demand against the backdrop of declining interest rates supports huge optimism in the sector (read: ETF Market Outlook & Investing Strategies for 2024).
ETFs in Focus
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 $2.4 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 40 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk.
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.
SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $1.7 billion and an average daily volume of 4 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: Falling Mortgage Rates Boost Housing ETFs).
Invesco Building & Construction ETF (PKB - Free Report)
Invesco Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 32 well-diversified stocks in its basket, with none accounting for more than 5.1% of the assets.
Invesco Building & Construction ETF has amassed assets worth $246.1 million and sees a lower volume of roughly 17,000 shares per day on average. The expense ratio comes in at 0.62%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #3 with a High risk outlook.