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The latest new home sales data for November is encouraging to an extent. Per the Commerce Department data, new home sales inched up 1.3% to a seasonally adjusted annual rate of 719,000 units in the month. This compares favorably with October’s sales pace that was revised downward to 710,000 units from the previously reported 733,000 units. Meanwhile, Reuters’ economists had forecast a rise to 734,000 units in November. Year over year, new home sales rallied 16.9% (read: ETFs in Focus on Upbeat November Housing Starts Update).
Moreover, in comparison to 5.5 months needed to deplete the supply of homes in October, the latest data suggests that 5.4 months will suffice at the current pace. However, in November, the number of new homes in the market were unchanged in comparison to October’s level and totaled 323,000. Also, the median new home price in November was $330,800, up 7.2% year over year. Interestingly, new home sales were at the higher end of the $200,000-$400,000 price range compared with those costing below the usual mark of $200,000.
Current Housing Market Scenario
After three rate cuts in 2019, the Fed hinted at keeping the 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. According to Freddie Mac, the average of 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.
Furthermore, the upbeat U.S. homebuilders sentiment data for December cheered investors. The metric has scaled to the highest level since June 1999. Moreover, the data on U.S. housing starts and building permits has been impressive.
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 denting sales.
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 47.4% 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 $1.16 billion, it holds a basket of 45 stocks, heavily focusing 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 $827 million. Itcharges 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 40.1%
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 $111.2 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 to Gain on Positive US New Home Sales Data
The latest new home sales data for November is encouraging to an extent. Per the Commerce Department data, new home sales inched up 1.3% to a seasonally adjusted annual rate of 719,000 units in the month. This compares favorably with October’s sales pace that was revised downward to 710,000 units from the previously reported 733,000 units. Meanwhile, Reuters’ economists had forecast a rise to 734,000 units in November. Year over year, new home sales rallied 16.9% (read: ETFs in Focus on Upbeat November Housing Starts Update).
New home sales, which make for 11.8% of housing market sales, declined 4.1% in the South but surged 52.4% in the Northeast in November. Meanwhile, sales were flat in the Midwest and gained 7.5% in the West.
Moreover, in comparison to 5.5 months needed to deplete the supply of homes in October, the latest data suggests that 5.4 months will suffice at the current pace. However, in November, the number of new homes in the market were unchanged in comparison to October’s level and totaled 323,000. Also, the median new home price in November was $330,800, up 7.2% year over year. Interestingly, new home sales were at the higher end of the $200,000-$400,000 price range compared with those costing below the usual mark of $200,000.
Current Housing Market Scenario
After three rate cuts in 2019, the Fed hinted at keeping the 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. According to Freddie Mac, the average of 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.
Furthermore, the upbeat U.S. homebuilders sentiment data for December cheered investors. The metric has scaled to the highest level since June 1999. Moreover, the data on U.S. housing starts and building permits has been impressive.
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 denting sales.
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 47.4% 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 $1.16 billion, it holds a basket of 45 stocks, heavily focusing 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 39.7%
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 $827 million. Itcharges 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 40.1%
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 $111.2 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 >>