ETFs to Shine on Record US Homebuilder Confidence in September
Historically, low mortgage rates continue to support the housing market even as the coronavirus cases are rising in the United States. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for newly-built single-family homes surged to an all-time high of 83 points in September in comparison to 78 points in August, 72 in July, 58 in June, 37 in May and 30 in April (the lowest since June 2012). Notably, previous month’s reading was the highest in the 35-year long history of the index, matching the December 1998 record. Any reading above 50 is considered positive and signals at improving confidence.
Notably, all three components of the index gained. The current sales conditions came in at 88 compared with 84 in August. Buyer traffic soared to the peak level at 73 from 64 last month and sales expectations rose to 84 in September from 78 in the prior month, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast spiked 11 points to 76. Moreover, the South index climbed eight points to 79. Also, the Western index jumped seven points to 85 with the Midwest scaling up nine points to 72, per the release.
NAHB chief economist Robert Dietz reportedly commented “that said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating,” per the press release.
Current Housing Market Scenario
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe that support from the Federal Reserve is aiding to keep rates at such modest levels. The Fed in its commitment to drive economic recovery at the recently-concluded meeting decided to keep the interest rates at near-zero level. It also hinted at sustaining the same at a moderate level for a prolonged period until inflation shows a consistent rise and the labor market achieves maximum employment. Among the central bank officials who participated in the meeting, most expect to keep the rates close to zero at least through 2021 while 13 of them project the same to stay at such an ultra-low level until 2023.
Meanwhile, the rising lumber prices, which have more than doubled since mid-April, can induce sluggishness in the housing market despite low interest rates. In this regard, Robert Dietz said that the “lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home,” per the press release.
To fight the escalating material costs, NAHB chairman Chuck Fowke, a custom home builder from Tampa, FL reportedly stated that “more domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months”.
Also, low employment levels and an aggravating coronavirus outbreak will continue to impede the U.S. housing market momentum.
Homebuilder ETFs That May Gain
Against this backdrop, investors can look into the following housing ETFs that might benefit:
iShares U.S. Home Construction ETF ITB
This fund provides exposure to the U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $2.27 billion, it holds a basket of 46 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High-risk outlook (read: 4 Sector ETFs to Benefit From 3-Year Lower Rates).
SPDR S&P Homebuilders ETF XHB
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 $1.35 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3 with a High-risk outlook (read: all the Materials ETFs here).
Invesco Dynamic Building & Construction ETF PKB
This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 32 stocks, each accounting for less than a 5.35% share. It amassed assets worth $129.8 million. The expense ratio is 0.60%. The fund is Zacks #3 Ranked with a High-risk outlook.
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SPDR SP Homebuilders ETF (XHB): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
Invesco Dynamic Building Construction ETF (PKB): ETF Research Reports
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