Back to top

Image: Bigstock

Is it a Bad Time to Invest in Housing ETFs Now? Let's Find Out

Read MoreHide Full Article

The coronavirus pandemic continues to weigh on the U.S. economy, largely due to the shutdown of economic activities due to social distancing measures. The March data on U.S. housing starts and building permits reflects the largest decline in U.S. homebuilding in 36 years (per a Reuters article). According to the Commerce Department, housing starts decreased 22.3% to a seasonally adjusted annual rate of 1.216 million units (the steepest monthly decline since March 1984) per a National Association of Home Builders (NAHB) press release. The figure lags analysts’ expectations of 1.300 million units, per a Reuters’ poll. The metric also compares unfavorably with February’s downwardly revised figure of 1.564 million units. On a year-over-year basis, housing starts rose 1.4% in March.

Building permits, a construction pointer for the coming months, declined 6.8% to a rate of 1.353 million units in March.

There was a 17.5% fall in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 856,000 units in March. Moreover, permits to construct single-family homes declined 12% to 884,000 units in the month (per a NAHB press release).

Meanwhile, housing starts for the multi-family housing segment slid 31.7% to 360,000 units in the last month. However, there was a 4.9% rose in permits to build multi-family homes to a rate of 469,000 units in March.

The recently-released data on the U.S. builder confidence was disappointing as well. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for single-family homes dropped 42 points to 30 in April (the lowest point since June 2012) compared with 72 in March, 74 in February and 75 in January (per the NAHB press release). In its 35-year history, the index measuring the homebuilder sentiment has witnessed the sharpest monthly decline (per a CNBC article). The metric also compares unfavorably with economists’ expectations of a drop to 55 (according to a CNBC article).

Homebuilder ETFs That May Face Trouble

The U.S. housing sector is being impacted with the coronavirus crippling the job market and in turn spending.

In such a scenario, here are a few housing ETFs that might suffer from the weakening housing sector scenario:

iShares U.S. Home Construction ETF (ITB - Free Report)  

This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $696.7 million, it holds a basket of 44 stocks, heavily focused on the top three firms. The product charges 42 basis points (bps) in annual fees (read: Any Bright Spot in Q1 Earnings? Sector ETFs & Stocks to Buy).

SPDR S&P Homebuilders ETF (XHB - Free Report)

A popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. The fund holds about 34 securities in its basket. It has an AUM of $487.6 million. The fund charges 35 bps in annual fees.

Invesco Dynamic Building & Construction ETF (PKB - Free Report)  

This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 29 stocks in its basket, each accounting for less than a 6.8% share. It has amassed assets worth $61 million. The expense ratio is 0.60% (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 >>

Published in