Is It a Right Time to Buy Housing ETFs Now? Let's Find out

Another round of encouraging data from the U.S. housing market signals that the sector is gaining back the momentum. According to the Commerce Department, total housing starts rose 17.3% to a seasonally adjusted annual rate of 1.19 million units in June per a National Association of Home Builders’ (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.

There was a 17.2% increase in single-family homebuilding, which constitutes a large portion of the housing market, to a rate of 831,000 units in June. Moreover, permits to construct single-family homes climbed 11.8% to 834,000 units in the month (per a NAHB press release).

Meanwhile, housing starts for the multi-family housing segment jumped 17.5% to 355,000 units last month. However, there was a 13.4% fall in permits to a rate of 407,000 units in June for building multi-family homes.

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 the builder confidence to its pre-pandemic level of March. Notably, any reading above 50 is considered positive and signals improvement in confidence.

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 cushion 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 elevate prices. However, low employment levels and the aggravating coronavirus outbreak can continue to impede the U.S. housing market’s momentum.

Homebuilder ETFs That May Shine

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 AUM of $1.81 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 $906.7 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 32 stocks in its basket, each accounting for less than a 5.31% share. It has amassed assets worth $98 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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