We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Rising Rate Fears Spoil the Planned Party in Housing ETFs
Read MoreHide Full Article
Recently released existing and new U.S. home sales data for the month of March deserve a big round of applause. Despite persistently low inventories and a shoot-up in price, both rose and beat market expectations.
Existing home sales in the United States rose 1.1% sequentially to a seasonally adjusted annual rate of 5.6 million in March 2018. It breezed past market expectations of a 0.2% rise to 5.54 million.
And sales of new single-family houses, which make up about 10% of all U.S. home sales,rose 4% from the earlier month to a seasonally adjusted annual rate of 694 thousand, marking a four-month high and beating market consensus of 625 thousand.
At the current pace of sales, existing supplies would be exhausted in 5.2 months, which is no doubt lesser by historical standard, but still steady. So far this year, sales are 10.3% higher than the same phase in 2017 as builders react to robust demand.
Housing Sector Springs
The housing sector normally performs better in the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar.
Buyers brushed aside fears of higher home prices. Rather, they appeared to have dipped their toes in the housing market for as long as the rates remained affordable. A solid job market played its role in driving this segment. The homebuilding stocks hail from a top-ranked Zacks industry (top 32%) (read: Why Housing Stocks & ETFs Can Have a Spring in Their Step).
Market Impact
However, all these optimisms were marred by the recent spike in Treasury yield as the home building industry is inversely related to interest rates. The short-term, two-year Treasury yield hit a new 2008 high lately while the 10-year benchmark U.S. Treasury yield spiked to 3% on Apr 24 for the first time since January 2014, thanks to the dual prospects of a flurry of new government debt and faster Fed rate hikes. Markets started to assume four rate hikes this year.
As a result, SPDR S&P Homebuilders ETF (XHB - Free Report) dropped more than 1.2% despite reporting sound new home sales data on Apr 24 and lost about 1% in the last two days (as of Apr 24). iShares U.S. Home Construction ETF(ITB - Free Report) retreated about 0.9% on Apr 24 and 0.5% in the last two days (read: 5 ETFs to Play Rising Yields).
What Lies Ahead?
Though rising rates are concerns, rates should go a little higher to spell trouble for the space. The monthly average commitment rate was 4.44% in March 2018, up from 4.20% noticed in the year-ago period but way below than the average of 6.34% noted in recession-stricken 2017, as per freddiemac. Though the industry backdrop is decent, investors can witness panic selling in the near term.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Rising Rate Fears Spoil the Planned Party in Housing ETFs
Recently released existing and new U.S. home sales data for the month of March deserve a big round of applause. Despite persistently low inventories and a shoot-up in price, both rose and beat market expectations.
Existing home sales in the United States rose 1.1% sequentially to a seasonally adjusted annual rate of 5.6 million in March 2018. It breezed past market expectations of a 0.2% rise to 5.54 million.
And sales of new single-family houses, which make up about 10% of all U.S. home sales,rose 4% from the earlier month to a seasonally adjusted annual rate of 694 thousand, marking a four-month high and beating market consensus of 625 thousand.
At the current pace of sales, existing supplies would be exhausted in 5.2 months, which is no doubt lesser by historical standard, but still steady. So far this year, sales are 10.3% higher than the same phase in 2017 as builders react to robust demand.
Housing Sector Springs
The housing sector normally performs better in the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar.
Buyers brushed aside fears of higher home prices. Rather, they appeared to have dipped their toes in the housing market for as long as the rates remained affordable. A solid job market played its role in driving this segment. The homebuilding stocks hail from a top-ranked Zacks industry (top 32%) (read: Why Housing Stocks & ETFs Can Have a Spring in Their Step).
Market Impact
However, all these optimisms were marred by the recent spike in Treasury yield as the home building industry is inversely related to interest rates. The short-term, two-year Treasury yield hit a new 2008 high lately while the 10-year benchmark U.S. Treasury yield spiked to 3% on Apr 24 for the first time since January 2014, thanks to the dual prospects of a flurry of new government debt and faster Fed rate hikes. Markets started to assume four rate hikes this year.
As a result, SPDR S&P Homebuilders ETF (XHB - Free Report) dropped more than 1.2% despite reporting sound new home sales data on Apr 24 and lost about 1% in the last two days (as of Apr 24). iShares U.S. Home Construction ETF(ITB - Free Report) retreated about 0.9% on Apr 24 and 0.5% in the last two days (read: 5 ETFs to Play Rising Yields).
What Lies Ahead?
Though rising rates are concerns, rates should go a little higher to spell trouble for the space. The monthly average commitment rate was 4.44% in March 2018, up from 4.20% noticed in the year-ago period but way below than the average of 6.34% noted in recession-stricken 2017, as per freddiemac. Though the industry backdrop is decent, investors can witness panic selling in the near term.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>