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ETFs in Focus on Upbeat November Housing Starts Update
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The latest data on U.S. housing starts has been welcomed by investors. The metric increased 3.2% in November to a seasonally adjusted annual rate of 1.365 million units. The figure surpasses the analysts’ expectations of a 1.345 million units, per a Reuters’ poll. The housing starts data compares favorably with October’s upwardly revised figure of 1.323 million units. On a year-over-year basis, housing starts rose 13.6% in November.
Building permits, a construction pointer for the coming months, inched up 1.4% to an annual rate of 1.482 million units (the highest level since May 2007).
After three rate cuts in 2019, the Fed hinted at keeping interest rates intact in 2020 unless there is any major change in the economic outlook. It is widely believed that declining mortgage rates cushioned the housing sector as lower borrowing costs are making new houses more affordable. In fact, mortgage rates are currently at a low per historical standards. Per Freddie Mac, the average rate on a 30-year, fixed-rate mortgage was 3.73% as of Dec 12 and compares favorably with 4.94% in November 2018.
Moreover, residential investment regained momentum in the third quarter after shrinking for six consecutive quarters.
However, builders continue to bear the brunt of rising development and construction costs apart from trade woes. They are still grappling with regulatory burdens, deficit of lots and lack of skilled labor. These hurdles are affecting supply, which in turn, are disturbing the reasonable pricing of homes. Of late, a surge in home prices is also observed, which is eroding the benefits of low mortgage rates and thus affecting sales. The median house price was 6.2% higher in October compared to last year's level.
Homebuilder ETFs in View
Against the aforementioned backdrop, let’s take a look at some homebuilder ETFs.
iShares U.S. Home Construction ETF (ITB - Free Report) — up 47.5% year to date
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 $1.29 billion, it holds a basket of 45 stocks, heavily focused on the top two firms. The product charges 42 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Not Santa, Trade Will Rule This December: ETFs to Your Rescue).
A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket. It has AUM of $812.1 million. It charges 35 bps in annual fees and has a Zacks ETF Rank of 3 with a High risk outlook (read: 6 Trade-Proof Sector ETFs to Follow if No Deal is Cracked).
Invesco Dynamic Building & Construction ETF (PKB - Free Report) — up 41.1%
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket, with each accounting for less than a 5.2% share. It has amassed assets worth $113.1 million. Expense ratio comes in at 0.60%. It is a Zacks #3 Ranked ETF with a High risk outlook (see: all the Materials ETFs here).
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ETFs in Focus on Upbeat November Housing Starts Update
The latest data on U.S. housing starts has been welcomed by investors. The metric increased 3.2% in November to a seasonally adjusted annual rate of 1.365 million units. The figure surpasses the analysts’ expectations of a 1.345 million units, per a Reuters’ poll. The housing starts data compares favorably with October’s upwardly revised figure of 1.323 million units. On a year-over-year basis, housing starts rose 13.6% in November.
Regionally, housing starts in the South that make up for the majority of homebuilding activity hit the maximum since March 2007. However, unseasonably cold temperatures and snowstorms resulted in a decline in homebuilding activity in the Midwest (read: After a Stellar 2019, Housing ETFs Set for a Sturdy 2020).
Building permits, a construction pointer for the coming months, inched up 1.4% to an annual rate of 1.482 million units (the highest level since May 2007).
There was a 2.4% rise in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 938,000 units in November. This marks the highest level since January 2019. Locally, single-family housing starts declined in the Midwest and the South while the same rose in Northeast and the West. Moreover, permits to construct single-family homes inched up 0.8% to 918,000 units in November (the highest level since July 2007).
Meanwhile, housing starts for the multi-family housing segment rose 4.9% to 427,000 units in November. Moreover, there was a 2.5% increase in permits to build multi-family homes to a rate of 564,000 units in November.
Meanwhile, there was a 6.6% fall to 1.188 million units of housing completions in November. The range of 1.5-1.6 million units per month for housing starts and completion rates is deemed to be sufficient by realtors to bridge the inventory gap. Moreover, the housing under construction inventory rose 1% to 1.170 million units in November (the highest level since April 2007). Moreover, the stock of multi-family housing units under construction reached the topmost level since September 1974 (read: 5 Best Stocks in the Hot Homebuilding ETF).
Present Housing Market Scenario
After three rate cuts in 2019, the Fed hinted at keeping interest rates intact in 2020 unless there is any major change in the economic outlook. It is widely believed that declining mortgage rates cushioned the housing sector as lower borrowing costs are making new houses more affordable. In fact, mortgage rates are currently at a low per historical standards. Per Freddie Mac, the average rate on a 30-year, fixed-rate mortgage was 3.73% as of Dec 12 and compares favorably with 4.94% in November 2018.
Moreover, residential investment regained momentum in the third quarter after shrinking for six consecutive quarters.
However, builders continue to bear the brunt of rising development and construction costs apart from trade woes. They are still grappling with regulatory burdens, deficit of lots and lack of skilled labor. These hurdles are affecting supply, which in turn, are disturbing the reasonable pricing of homes. Of late, a surge in home prices is also observed, which is eroding the benefits of low mortgage rates and thus affecting sales. The median house price was 6.2% higher in October compared to last year's level.
Homebuilder ETFs in View
Against the aforementioned backdrop, let’s take a look at some homebuilder ETFs.
iShares U.S. Home Construction ETF (ITB - Free Report) — up 47.5% year to date
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 $1.29 billion, it holds a basket of 45 stocks, heavily focused on the top two firms. The product charges 42 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Not Santa, Trade Will Rule This December: ETFs to Your Rescue).
SPDR S&P Homebuilders ETF (XHB - Free Report) — up 39.6%
A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 35 securities in its basket. It has AUM of $812.1 million. It charges 35 bps in annual fees and has a Zacks ETF Rank of 3 with a High risk outlook (read: 6 Trade-Proof Sector ETFs to Follow if No Deal is Cracked).
Invesco Dynamic Building & Construction ETF (PKB - Free Report) — up 41.1%
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket, with each accounting for less than a 5.2% share. It has amassed assets worth $113.1 million. Expense ratio comes in at 0.60%. It is a Zacks #3 Ranked ETF with a High risk outlook (see: all the Materials ETFs here).
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 >>