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Builder Confidence Declines: Are Homebuilder ETFs in Trouble?
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Homebuilder confidence has plummeted to an 18-month low, stirring concerns about the health of the housing market and raising red flags for investors in homebuilder-related ETFs. As such, iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) are likely to feel the pinch.
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, builder confidence fell in June to 32, its lowest level since December 2022. Gauges of traffic of prospective buyers and expected sales over the next six months are both at the weakest point in more than a year, per NAHB data. Current sales conditions dropped to the lowest level since 2012.
High mortgage rates, concerns over the broader U.S. economy and potential tariff-driven cost increases have discouraged both builders and buyers. In fact, the NAHB estimates that new tariffs, anticipated under President Trump’s trade policies, could increase the cost of constructing a home by nearly $11,000 (read: Where's the Housing Market Heading? ETFs to Consider).
Adding to the pressure is increased competition from the resale market, as the inventory of existing homes is increasing. Builders are turning to discounting and incentives, with 37% reporting price cuts in June — the highest since NAHB began tracking the figure monthly in 2022.
Further, the housing sector is facing other headwinds, such as an ongoing shortage of labor and buildable lots as well as elevated building material prices.
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 $2.1 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average (read: Sector ETFs Set to Gain as Inflation Cools in May).
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 $1.2 billion and an average daily volume of 2.4 million shares. The product charges 35 bps in annual fees.
Invesco Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5.2% of the assets. Invesco Building & Construction ETF has amassed assets worth $216.7 million and sees a lower volume of roughly 13,000 shares per day on average. The expense ratio comes in at 0.57%.
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies and real estate services and technology firms, by tracking the Hoya Capital Housing 100 Index. Hoya Capital Housing ETF has accumulated $33.1 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 2,000 shares.
Bottom Line
With sentiment nearing pandemic lows and affordability issues, homebuilder ETFs will remain under pressure. The above-mentioned ETFs have a Zacks ETF Rank #4 (Sell), indicating more pain ahead. However, investors shouldn’t completely write off the homebuilder ETFs from their portfolio because they offer exposure to various firms, suggesting that the space can easily counter shocks from some of the industry’s biggest components.
Further, long-term housing demand may remain robust due to demographics and low supply.
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Builder Confidence Declines: Are Homebuilder ETFs in Trouble?
Homebuilder confidence has plummeted to an 18-month low, stirring concerns about the health of the housing market and raising red flags for investors in homebuilder-related ETFs. As such, iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) are likely to feel the pinch.
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, builder confidence fell in June to 32, its lowest level since December 2022. Gauges of traffic of prospective buyers and expected sales over the next six months are both at the weakest point in more than a year, per NAHB data. Current sales conditions dropped to the lowest level since 2012.
High mortgage rates, concerns over the broader U.S. economy and potential tariff-driven cost increases have discouraged both builders and buyers. In fact, the NAHB estimates that new tariffs, anticipated under President Trump’s trade policies, could increase the cost of constructing a home by nearly $11,000 (read: Where's the Housing Market Heading? ETFs to Consider).
Adding to the pressure is increased competition from the resale market, as the inventory of existing homes is increasing. Builders are turning to discounting and incentives, with 37% reporting price cuts in June — the highest since NAHB began tracking the figure monthly in 2022.
Further, the housing sector is facing other headwinds, such as an ongoing shortage of labor and buildable lots as well as elevated building material prices.
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 $2.1 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average (read: Sector ETFs Set to Gain as Inflation Cools in May).
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 $1.2 billion and an average daily volume of 2.4 million shares. The product charges 35 bps in annual fees.
Invesco Building & Construction ETF (PKB - Free Report)
Invesco Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5.2% of the assets. Invesco Building & Construction ETF has amassed assets worth $216.7 million and sees a lower volume of roughly 13,000 shares per day on average. The expense ratio comes in at 0.57%.
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies and real estate services and technology firms, by tracking the Hoya Capital Housing 100 Index. Hoya Capital Housing ETF has accumulated $33.1 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 2,000 shares.
Bottom Line
With sentiment nearing pandemic lows and affordability issues, homebuilder ETFs will remain under pressure. The above-mentioned ETFs have a Zacks ETF Rank #4 (Sell), indicating more pain ahead. However, investors shouldn’t completely write off the homebuilder ETFs from their portfolio because they offer exposure to various firms, suggesting that the space can easily counter shocks from some of the industry’s biggest components.
Further, long-term housing demand may remain robust due to demographics and low supply.