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Homebuilders' Confidence Up for 3 Months in Row: ETFs in Focus

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The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) experienced a notable increase, climbing 4 points to reach 48 in February, as quoted on Yahoo Finance. This improvement marks the third successive month of positive sentiment in the housing market and represents the highest level of confidence since August 2023.

The uptick, surpassing economists' expectations of a 46 reading, signals growing optimism among homebuilders (read: Time for Housing ETFs This Spring?).

Factors Fueling Confidence

Several factors contribute to the heightened confidence among homebuilders. Considerable decline in mortgage rates over recent months has played a crucial role in boosting expectations for stronger demand from homebuyers. The relative strength of the newly constructed home market, coupled with the anticipation of further decreases in mortgage rates, is expected to stimulate buyer interest.

NAHB Chairman Alicia Huey, commenting on the trend, highlighted the improved buyer traffic and the positive impact of even minor rate declines on prospective homebuyers' interest. Despite the ongoing challenge of high mortgage rates, there is an expectation of increased market activity driven by pent-up demand, especially if rates continue to fall throughout the year.

Construction and Pricing Trends

In Eagleville, Pennsylvania, the commitment to ramp up the construction of single-family homes is evident, with builders responding to the softened mortgage rates and the broad expectation of further easing in borrowing costs in 2024.

The industry has observed a shift in strategies regarding pricing and incentives to stimulate sales. In February, the percentage of builders who reported reducing home prices fell to 25% from 31% in January and 36% in the last two months of 2023. Concurrently, the prevalence of builders offering incentives to buyers decreased to 58%, marking the lowest share since the previous August.

ETFs in Focus

Against this backdrop, below we highlight a few housing stocks and ETFs that could be up for gains in the coming days.

iShares U.S. Home Construction ETF (ITB - Free Report)

The underlying Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. It is a free-float adjusted market capitalization-weighted index. It measures the performance of the home construction sector of the U.S. equity market. The fund charges 40 bps in fees.

SPDR S&P Homebuilders ETF (XHB - Free Report)

The underlying S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilder’s Index is a modified equal weight index. The fund charges 35 bps in fees.


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