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Luxury Home Market Stays Strong: ETF & Stock Picks
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There’s no doubt that the U.S. housing market is struggling. Land and labor shortage, resulting in inventory crunch and rising mortgage rates, is weighing on sales data. Additionally, the U.S. Government’s latest move of imposing tariff on imported steel and aluminum have also added to the rising home prices (read: Trump Tariffs Put These Sector ETFs & Stocks in Focus).
The outcome of this situation was a decline in existing home sales for four successive months in July. Sales of previously owned homes dropped 0.7% to a seasonally adjusted annual rate of 5.34 million units in July, falling shy of market expectations of a 0.6% rise to 5.4 million. It is the lowest rate since February of 2016. “July’s drop marked the longest streak of monthly declines since 2013,”’ per Wall Street Journal.
Median sales price rose 4.5% year over year in July. Inventory of available properties remained same year over year. Rising house prices put aside some potential buyers. About 63% Americans see this as a good time to buy a home, which is the smallest since 2008, per the University of Michigan consumer sentiment survey. The latest sales data took a toll on housing stocks and ETFs on Aug 22.
While these data spark off concerns, there is a corner in the housing market which appears as a silver lining.
Markets for Luxury Homes Steady
Investors should note that the decline in demand is mainly noticed in low-income group. There is an increasing activity among those with higher income and financial assets. After all, equity bull market is in the longest stretch in American history. This should boost portfolios of richer people and create a wealth effect (read: Longest Bull Run for US Market: 5 Growth ETF Picks).
National Association of Realtors noted that properties priced above $1 million made up 3.7% of single-family home sales in July, up from 2.7% a year earlier. In fact, the number of super-luxury homes is increasing in the country.
About 4.3% of homes overall are currently valued at $1 million or more in the 100 largest metro cities in the United States, about 3.8 times higher than that of in 2002, per a report. In San Francisco, expensive homes valued at $1 million or more made up 66% of the total housing market in 2017, up from the 22.4% market share those had in 2012.
The bullish trend in the luxury housing segment can be attested by the latest earnings results of Toll Brothers Inc. (TOL - Free Report) , which builds luxury homes, latest earnings. The company reported earnings of $1.26 per share in the fiscal third quarter, beating the Zacks Consensus Estimate of $1.03. The reported figure also grew 44.8% from the year-ago level. Reported revenues of $1.91 billion surpassed the consensus mark of $1.81 billion. The reported figure also increased by an impressive 27% year over year.
It is the leading builder of quality new homes in the most desirable real estate markets across the nation. It has a VGM Score of A and Zacks Rank #2 (Buy).
The fund follows the S&P Homebuilders Select Industry Index. D.R. Horton, Lennar Corporation and Toll Brothers get a place in the top 10 holdings, with weights ranging from 4.46% to 4.81%.
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Luxury Home Market Stays Strong: ETF & Stock Picks
There’s no doubt that the U.S. housing market is struggling. Land and labor shortage, resulting in inventory crunch and rising mortgage rates, is weighing on sales data. Additionally, the U.S. Government’s latest move of imposing tariff on imported steel and aluminum have also added to the rising home prices (read: Trump Tariffs Put These Sector ETFs & Stocks in Focus).
The outcome of this situation was a decline in existing home sales for four successive months in July. Sales of previously owned homes dropped 0.7% to a seasonally adjusted annual rate of 5.34 million units in July, falling shy of market expectations of a 0.6% rise to 5.4 million. It is the lowest rate since February of 2016. “July’s drop marked the longest streak of monthly declines since 2013,”’ per Wall Street Journal.
Median sales price rose 4.5% year over year in July. Inventory of available properties remained same year over year. Rising house prices put aside some potential buyers. About 63% Americans see this as a good time to buy a home, which is the smallest since 2008, per the University of Michigan consumer sentiment survey. The latest sales data took a toll on housing stocks and ETFs on Aug 22.
While these data spark off concerns, there is a corner in the housing market which appears as a silver lining.
Markets for Luxury Homes Steady
Investors should note that the decline in demand is mainly noticed in low-income group. There is an increasing activity among those with higher income and financial assets. After all, equity bull market is in the longest stretch in American history. This should boost portfolios of richer people and create a wealth effect (read: Longest Bull Run for US Market: 5 Growth ETF Picks).
National Association of Realtors noted that properties priced above $1 million made up 3.7% of single-family home sales in July, up from 2.7% a year earlier. In fact, the number of super-luxury homes is increasing in the country.
About 4.3% of homes overall are currently valued at $1 million or more in the 100 largest metro cities in the United States, about 3.8 times higher than that of in 2002, per a report. In San Francisco, expensive homes valued at $1 million or more made up 66% of the total housing market in 2017, up from the 22.4% market share those had in 2012.
The bullish trend in the luxury housing segment can be attested by the latest earnings results of Toll Brothers Inc. (TOL - Free Report) , which builds luxury homes, latest earnings. The company reported earnings of $1.26 per share in the fiscal third quarter, beating the Zacks Consensus Estimate of $1.03. The reported figure also grew 44.8% from the year-ago level. Reported revenues of $1.91 billion surpassed the consensus mark of $1.81 billion. The reported figure also increased by an impressive 27% year over year.
Against this backdrop, we highlight a few stocks and ETFs that are can benefit on the trend (read: Housing ETFs Seesaw Between Poor Sales Data & Solid Earnings).
Stock Picks
Lennar Corporation (LEN - Free Report)
It is the leading builder of quality new homes in the most desirable real estate markets across the nation. It has a VGM Score of A and Zacks Rank #2 (Buy).
D.R. Horton Inc. (DHI - Free Report)
This Zacks Rank #2 company is engaged in the construction and sale of high-quality homes. It has a VGM Score of A.
ETF Picks
iShares U.S. Home Construction ETF (ITB - Free Report)
The 47-stock fund puts 14.1% exposure to D R Horton followed by 12.84% focus on Lennar.
SPDR S&P Homebuilders ETF (XHB - Free Report)
The fund follows the S&P Homebuilders Select Industry Index. D.R. Horton, Lennar Corporation and Toll Brothers get a place in the top 10 holdings, with weights ranging from 4.46% to 4.81%.
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 >>