Markets

ETFs & Stocks to Ride on a Housing Boom

The housing market has been one of the bright spots of the economy amid slowing growth due to the coronavirus pandemic. This is primarily thanks to ultra-low mortgage rates, and a wave of millennials and others increasingly vying to become homeowner.

Mortgage rates have been on a declining trend, reaching new unprecedented lows. According to Freddie Mac, the 30-year fixed mortgage rate averaged 2.80% for the week ending Oct 22, down from 2.81% the week before and 3.75% a year ago. The current level is the lowest in the survey’s history dating back to 1971. Record-low mortgage rates are encouraging people to buy more homes and have made refinance cheaper. This trend is likely to continue at least this year on the Fed’s easy money policy.

Additionally, home sales have surged in recent months to the highest level in more than a decade. The latest data from the National Association of Realtors revealed that U.S. existing home sales surged in September to levels not seen in more than 14 years. Builder sentiment also surged in October to a record high for the second month in a row (read: ETFs to Gain on Record US Homebuilder Confidence in October).

Moreover, homebuilders are currently well placed, belonging to a top-ranked Zacks industry (placed at the top 3% of 250+ industries), suggesting a solid outlook. However, labor shortage, rising construction costs and high unemployment remain causes of concern.

Given the bullish trend, investors should tap the booming housing market with the following ETFs & stocks:

iShares U.S. Home Construction ETF 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 $2.4 billion, it holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 42 bps in annual fees and trades in heavy volume of around 3.2 million shares a day on average. It has surged 21.1% so far this year and carries a Zack ETF Rank #3 (Hold) with a Medium risk outlook (read: Best Stocks & ETFs to Profit from the Red-Hot Housing Market).

SPDR S&P Homebuilders ETF XHB

This ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishings, home improvement retail, home furnishing retail and household appliances. It is the most-popular option in the homebuilding space with AUM of $1.5 billion and an average daily volume of 2.7 million shares. The product charges 35 bps in annual fees and has gained 18.3% so far this year. It has a Zack ETF Rank #3 with a High risk outlook.

Invesco Dynamic Building & Construction ETF PKB

This fund follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with each accounting for less than 6% share. It has amassed assets worth $149.6 million and sees a lower volume of roughly 27,000 shares per day on average. Expense ratio comes in at 0.60%. PKB is up 9.6% so far this year and has a Zack ETF Rank #3 with a High risk outlook (see: all the Industrial ETFs here).

Hoya Capital Housing ETF HOMZ

This ETF invests in 100 domestic companies involved in the housing industry, including residential REITs, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index. It has accumulated $37.1 million in its asset base and charges 30 bps in annual fees. The product trades in average daily volume of 10,000 shares and has added 4% this year. It has a Zack ETF Rank #3.

Meritage Homes Corporation MTH

It is one of the leading designers and builders of single-family homes. The company is primarily engaged in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States. With a market cap of $3.5 billion, the stock has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. It has soared nearly 55% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lennar Corporation LEN

This company is engaged in homebuilding and financial services in the United States. It has a market cap of $23.5 billion and has gained more than 34% this year. Lennar has a Zacks Rank #1 and a VGM Score of B.

M.D.C. Holdings Inc. MDC

This company is engaged in homebuilding and financial service businesses in the United States. It is engaged in the construction, sale and related financing of residential housing and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, mid Atlantic region, Las Vegas, Dallas, California metropolitan areas. The stock has gained 20.1% so far this year and has a market cap of $2.9 billion. It has a Zacks Rank #1 and a VGM Score of A (read: ETFs to Shine on Upbeat U.S. Housing Starts in September).    

PulteGroup Inc. PHM

This company is also engaged in homebuilding and financial services businesses, primarily in the United States. With a market cap of $11.4 billion, it has a Zacks Rank #1 and a VGM Score of A. PulteGroup is up 9.3% this year.

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PulteGroup, Inc. (PHM): Free Stock Analysis Report
 
Lennar Corporation (LEN): Free Stock Analysis Report
 
Meritage Homes Corporation (MTH): Free Stock Analysis Report
 
M.D.C. Holdings, Inc. (MDC): Free Stock Analysis Report
 
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
 
Hoya Capital Housing ETF (HOMZ): ETF Research Reports
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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