Markets

Housing ETFs to Gain on Upbeat Sales Data Amid Coronavirus Crisis

The U.S. housing market is seeing a streak of encouraging data amid the worsening coronavirus crisis. Existing home sales, including single-family homes, townhomes, condominiums and co-ops, which account for more than 90% of U.S. home sales, delivered a strong performance in June. The National Association of Realtors (NAR’s) data showed a 20.7% rise in existing homes sales to a seasonally-adjusted annual rate of 4.72 million units in June. It compares favorably with 3.91 million units observed in May (the lowest level since October 2010). Notably, the metric showed the highest gain since 1968 when the NAR had begun tracking the series (per a Reuters Article).

However, the metric lagged Reuters economists’ forecast of a 24.5% gain to a rate of 4.78 million units in June. Existing home sales were up in all four regions. The metric, however, declined 11.3% on a year-over-year basis in June.

Commenting on the data, Lawrence Yun, NAR’s chief economist said that, “the sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” according to NAR’s press release.

Current Housing Market Scenario

The recently-released data on the U.S. builder confidence was upbeat as well. Going by the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence  for newly-built single-family homes surged to 72 points in July from 58 in June. The same sentiment reached 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading to rise up to 60, per a Nasdaq article. Going forward, July’s 14-point increase marks the revival of builder confidence to its pre-pandemic level. Notably, any reading above 50 is considered positive and signals improvement in confidence.

According to the Commerce Department, total housing starts rose 17.3% to a seasonally adjusted annual rate of 1.19 million units in June NAHB press release. The figure almost met analysts’ expectations of 1.20-million units, per a MarketWatch poll. However, on a year-over-year basis, housing starts declined 4% in the said month. Building permits, a construction pointer for the coming months, inched up 2.1% to an annualized rate of 1.24 million units in June.

Low interest rates are boosting demand in the housing market, leading to a spurt in in mortgage applications. Per a Reuters article, the 30-year mortgage rate declined to 2.98%, on average, in the week ending Jul 17 compared with 3.03% in the prior week. Analysts believe that the Federal Reserve support is maintaining the rates at modest levels. Also, the rising economic uncertainty amid the coronavirus outbreak is driving demand for safe-haven assets like U.S. Treasuries (per the Reuters article). This, in turn, will spur consumer spending and demand in the housing market.

Meanwhile, inventory scarcity persists and might further lift prices. However, low employment levels and the aggravating coronavirus outbreak can continue to impede the U.S. housing market’s momentum.

Homebuilder ETFs to Shine

Given the encouraging scenario in the U.S. housing market, let’s take a look at a few homebuilder ETFs.

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 $1.77 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 currently has a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: Mortgage Rates at Record Lows: Buy Homebuilder & REIT ETFs).

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 $920.4 million. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3 at present, 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 5.37% share. It has amassed assets worth $101.5 million. The expense ratio is 0.60%. It is currently a Zacks #3 Ranked ETF, with a High-risk outlook (see: Trump or Biden, Infrastructure ETFs to Soar Higher).

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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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