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Homebuilder ETFs in Focus as Starts Jump, Permits Fall
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The struggling homebuilding industry heaved a sigh of relief after housing starts data for August came in above expectations and saw the biggest increase in seven months. U.S. housing starts climbed 9.2% to a seasonally adjusted annual rate of 1.28 million units. The solid data came after a decline of 0.3% in July and 11.4% in June.
The uptick in construction activity was driven by a solid 29.3% surge in apartment construction and a modest rise of 1.9% in single-family homes (read: Luxury Home Market Stays Strong: ETF & Stock Picks).
While starts recovered after two straight months of decline, building permits — a construction pointer for the coming months — unexpectedly dropped 5.7% to an annual rate of 1.23 million units. This represents the biggest drop since February 2017, suggesting that rising costs of lumber, land and labor are actually derailing the recovery in the housing market.
According to the National Association of Home Builders, lumber prices have shot up by about $7,000 per home since the start of 2017, largely due to Trump’s tariffs imposed on imports of Canadian softwood lumber. Additionally, homebuilders are witnessing a slowdown due to lower inventories and higher mortgage rates. With the Fed on track to raise its short-term interest rates over the next two years and unwind some of its prior asset purchases, longer-term interest rates, including that of mortgages, is on the rise, making homes costlier and hampering affordability.
However, accelerating job market with rising wages and lowest unemployment rate in nearly two decades will fuel strong demand for homes. This will in turn benefit homebuilders and the related ETFs (read: August Wage Growth Hits 9-Year High: ETFs & Stocks to Surge).
Further, homebuilders are currently well placed, belonging to a top-ranked Zacks Industry (top 32%), suggesting that the ongoing headwinds will be unable to diminish their appeal.
ETFs in Focus
Given this, investors might want to look at the homebuilder ETFs — iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Invesco Dynamic Building & Construction ETF (PKB - Free Report) — for their exposure to the sector (see: all the Materials ETFs here).
ITB
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.1 billion, it holds a basket of 47 stocks while charging 43 bps in annual fees. The product trades in heavy volume of around 2.5 million shares a day on average and has a Zacks ETF Rank #3 (Hold) with a High risk outlook. It has lost 13.4% so far this year.
XHB
The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket with AUM of $794.9 million and trades in volume of around 2.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a High risk outlook. XHB is down 8.7% in the year-to-date timeframe.
PKB
This fund follows the Dynamic Building & Construction Intellidex Index, holding 30 stocks in its basket. It has amassed assets worth $202.5 million. It sees moderate volume of around 46,000 shares per day on average. Expense ratio comes in at 0.58%. PKB has shed 10.8% so far this year and has a Zacks ETF Rank #3 with a High risk outlook (read: 4 ETFs Set to Soar in the Aftermath of Hurricane Florence).
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Homebuilder ETFs in Focus as Starts Jump, Permits Fall
The struggling homebuilding industry heaved a sigh of relief after housing starts data for August came in above expectations and saw the biggest increase in seven months. U.S. housing starts climbed 9.2% to a seasonally adjusted annual rate of 1.28 million units. The solid data came after a decline of 0.3% in July and 11.4% in June.
The uptick in construction activity was driven by a solid 29.3% surge in apartment construction and a modest rise of 1.9% in single-family homes (read: Luxury Home Market Stays Strong: ETF & Stock Picks).
While starts recovered after two straight months of decline, building permits — a construction pointer for the coming months — unexpectedly dropped 5.7% to an annual rate of 1.23 million units. This represents the biggest drop since February 2017, suggesting that rising costs of lumber, land and labor are actually derailing the recovery in the housing market.
According to the National Association of Home Builders, lumber prices have shot up by about $7,000 per home since the start of 2017, largely due to Trump’s tariffs imposed on imports of Canadian softwood lumber. Additionally, homebuilders are witnessing a slowdown due to lower inventories and higher mortgage rates. With the Fed on track to raise its short-term interest rates over the next two years and unwind some of its prior asset purchases, longer-term interest rates, including that of mortgages, is on the rise, making homes costlier and hampering affordability.
However, accelerating job market with rising wages and lowest unemployment rate in nearly two decades will fuel strong demand for homes. This will in turn benefit homebuilders and the related ETFs (read: August Wage Growth Hits 9-Year High: ETFs & Stocks to Surge).
Further, homebuilders are currently well placed, belonging to a top-ranked Zacks Industry (top 32%), suggesting that the ongoing headwinds will be unable to diminish their appeal.
ETFs in Focus
Given this, investors might want to look at the homebuilder ETFs — iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) and Invesco Dynamic Building & Construction ETF (PKB - Free Report) — for their exposure to the sector (see: all the Materials ETFs here).
ITB
This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $1.1 billion, it holds a basket of 47 stocks while charging 43 bps in annual fees. The product trades in heavy volume of around 2.5 million shares a day on average and has a Zacks ETF Rank #3 (Hold) with a High risk outlook. It has lost 13.4% so far this year.
XHB
The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket with AUM of $794.9 million and trades in volume of around 2.6 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a High risk outlook. XHB is down 8.7% in the year-to-date timeframe.
PKB
This fund follows the Dynamic Building & Construction Intellidex Index, holding 30 stocks in its basket. It has amassed assets worth $202.5 million. It sees moderate volume of around 46,000 shares per day on average. Expense ratio comes in at 0.58%. PKB has shed 10.8% so far this year and has a Zacks ETF Rank #3 with a High risk outlook (read: 4 ETFs Set to Soar in the Aftermath of Hurricane Florence).
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 >>