Markets

ETFs to Gain on Record Rise in Existing Home Sales

The housing sector seems to be a bright spot in the U.S. economy amid the coronavirus crisis as the sales of existing homes in July witnessed the strongest monthly rise in the survey’s history since 1968. National Association of Realtors (NAR’s) data showed a 24.7% rise in existing homes sales to a seasonally adjusted annual rate of 5.86 million units in July (the highest sales pace since December 2006). Furthermore, existing home sales rose 8.7% year over year.

First-time buyers accounted for 34% of sales in July, up from 32% in the year-ago period but down from 35% in June 2020. Existing homes sales increased in all four U.S. regions in July, led by a 30.6% jump in the Northeast. Sales in West surged 30.5% while it rose 27.5% and 19.4% in Midwest and South, respectively.

Commenting on the housing market scenario, Lawrence Yun, NAR’s chief economist said that “the housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days. With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021,” per the press release.

Moreover, the median existing-home price for all housing types came in at $304,100, up 8.5% year over year in July, marking the 101st straight month of year-over-year gains. Also, national median home prices crossed the $300,000 mark for the first time ever in July, per the press release.

Slew of Encouraging Housing Data

The recently-released data on the U.S. builder confidence was upbeat as well. Per the monthly NAHB/Wells Fargo Housing Market Index (“HMI”), builder confidence for newly-built single-family homes surged to 78 points in August from 72 in July, 58 in June, 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading, rising to 73, per a Reuters’ poll. Going on, August’s reading was the highest in the 35-year long history of the index, matching the December 1998 record. Notably, any reading above 50 is considered positive and signals at improving confidence.

Another round of upbeat data from the U.S. housing market signals that the sector is gaining the momentum back. According to the U.S. Housing and Urban Development and Commerce Department, total housing starts rose 22.6% (the biggest gain since October 2016) to a seasonally-adjusted annual rate of 1.50 million units in July per a NAHB press release. The figure is above June’s revised figure of 1.22 million units. The reading surpassed analysts’ expectations of 1.24 million units, per a Reuters’ poll.

Building permits, a construction pointer for the coming months, jumped 18.8% to an annualized rate of 1.50 million units in July.

Homebuilder ETFs Shining Bright

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

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 an AUM of $2.24 billion, it holds a basket of 44 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Wall Street's Best 100 Days Since 1933: ETF Winners).

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 an AUM of $1.17 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 well-diversified 31 stocks in its basket, each accounting for less than a 5.55% share. It has amassed assets worth $126.4 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: ETFs to Shine on Positive U.S. New Home Sales Data).

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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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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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