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ETFs to Play as Mortgage Rates Look Likely to Fall
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The 30-year mortgage rate is faring better than it did last November. With increasing expectations of interest rate cuts toward the end of the year, 2024 appears poised to provide relief to the housing market. While the rates have improved, it is crucial to acknowledge that they are still relatively high.
The recent inflation data has ignited market expectations of interest rate cuts in 2024, with a likelihood of 50.5% that the Fed might lower the rates to 5-5.25% in September, according to the CME FedWatch Tool. Per a Reuters poll, the majority of economists anticipate that the Fed will cut its key interest rate twice this year, beginning in September.
Predicting the Future of Mortgage Rate
A decline in the Federal funds rate, which typically has an indirect impact on the mortgage rate, may prove advantageous for borrowers. The national average for a 30-year fixed mortgage rate, which was at 7.22% in the first week of May, fell to 7.02%, as of May 16, according to Freddie Mac.
The Mortgage Bankers Association gave a more optimistic estimate for the mortgage rate, forecasting it to end the current year at 6.1% and fall further to 5.5% in 2025.
Lawrence Yun, chief economist of the National Association of Realtors (NAR), as quoted on Bankrate, anticipates current market conditions to settle by the end of 2024, with the 30-year fixed mortgage rate settling around 6% by the year-end.
Housing Inventory to Support Lower Projections?
Mortgage rates are also affected by the interaction of housing demand and supply. A surplus of housing inventory may lead to rate reductions to stimulate purchases, while a shortfall could elevate rates due to heightened competition for available properties.
According to Bankrate, the housing supply continues to be notably scarce. As of March, the total count of existing homes available for sale was 1.11 million units, marking an increase from both the prior month and the preceding year, translating to merely a 3.2-month supply, significantly below the typical 5 to 6 months required for market equilibrium.
However, according to Lawrence Yun, a slight uptick in housing inventory for 2024 may be on the table, which is a positive indication of the mortgage rate reduction.
ETFs to Explore
In April, core CPI rose by 3.6% year over year, in line with expectations, cooling from March's 3.8% increase. Improving projections for the mortgage rate and moderating inflation levels paint a rosy near-term outlook for the housing market.
The increasing housing sentiment since last November, coupled with growing consumer confidence in declining mortgage rates, makes investing in housing ETFs appealing. However, market uncertainty persists, particularly regarding economic data.
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 44 securities. The fund has gathered an asset base of $2.79 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained 4.02% over the past three months and 37.78% over the past year.
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index, with a basket of 34 securities. The fund has amassed an asset base of $ 1.93 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained 9.59% over the past three months and 45.94% over the past year.
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 gathered an asset base of $304.3 million and charges an annual fee of 0.62%.
Invesco Dynamic Building & Construction ETF has gained 11.17% over the past three months and 45.81% over the past year.
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index, with a basket of 100 securities. The fund has gathered an asset base of $43.2 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained 3.75% over the past three months and 20.86% over the past year.
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ETFs to Play as Mortgage Rates Look Likely to Fall
The 30-year mortgage rate is faring better than it did last November. With increasing expectations of interest rate cuts toward the end of the year, 2024 appears poised to provide relief to the housing market. While the rates have improved, it is crucial to acknowledge that they are still relatively high.
The recent inflation data has ignited market expectations of interest rate cuts in 2024, with a likelihood of 50.5% that the Fed might lower the rates to 5-5.25% in September, according to the CME FedWatch Tool. Per a Reuters poll, the majority of economists anticipate that the Fed will cut its key interest rate twice this year, beginning in September.
Predicting the Future of Mortgage Rate
A decline in the Federal funds rate, which typically has an indirect impact on the mortgage rate, may prove advantageous for borrowers. The national average for a 30-year fixed mortgage rate, which was at 7.22% in the first week of May, fell to 7.02%, as of May 16, according to Freddie Mac.
Per Fannie Mae, the 30-year fixed rate will settle at 6.4% by the end of 2024, indicating a downward trend in mortgage rates, as quoted on Norada Real Estate Investments.
The Mortgage Bankers Association gave a more optimistic estimate for the mortgage rate, forecasting it to end the current year at 6.1% and fall further to 5.5% in 2025.
Lawrence Yun, chief economist of the National Association of Realtors (NAR), as quoted on Bankrate, anticipates current market conditions to settle by the end of 2024, with the 30-year fixed mortgage rate settling around 6% by the year-end.
Housing Inventory to Support Lower Projections?
Mortgage rates are also affected by the interaction of housing demand and supply. A surplus of housing inventory may lead to rate reductions to stimulate purchases, while a shortfall could elevate rates due to heightened competition for available properties.
According to Bankrate, the housing supply continues to be notably scarce. As of March, the total count of existing homes available for sale was 1.11 million units, marking an increase from both the prior month and the preceding year, translating to merely a 3.2-month supply, significantly below the typical 5 to 6 months required for market equilibrium.
However, according to Lawrence Yun, a slight uptick in housing inventory for 2024 may be on the table, which is a positive indication of the mortgage rate reduction.
ETFs to Explore
In April, core CPI rose by 3.6% year over year, in line with expectations, cooling from March's 3.8% increase. Improving projections for the mortgage rate and moderating inflation levels paint a rosy near-term outlook for the housing market.
The increasing housing sentiment since last November, coupled with growing consumer confidence in declining mortgage rates, makes investing in housing ETFs appealing. However, market uncertainty persists, particularly regarding economic data.
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 44 securities. The fund has gathered an asset base of $2.79 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained 4.02% over the past three months and 37.78% over the past year.
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 34 securities. The fund has amassed an asset base of $ 1.93 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained 9.59% over the past three months and 45.94% over the past year.
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 gathered an asset base of $304.3 million and charges an annual fee of 0.62%.
Invesco Dynamic Building & Construction ETF has gained 11.17% over the past three months and 45.81% over the past year.
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 100 securities. The fund has gathered an asset base of $43.2 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained 3.75% over the past three months and 20.86% over the past year.