While the 30-year mortgage rate is showing signs of improvement and is again on a downward trajectory, it is crucial to acknowledge that they are still relatively high.
The 30-year mortgage rate is faring better than it did in May. It is 6.77% for the week ending Jul 19, down from 7.22% in early May.
Rate Cut Hopes to Push Mortgage Rates Even Lower
The recent inflation data has ignited market expectations of interest rate cuts this year. With increasing expectations of interest rate cuts toward the end of the year, 2024 appears poised to provide a relief to the housing market.
Increasing market expectations of an interest rate cut, with anticipations of one to two rate cuts this year, industry experts turn optimistic about mortgage rates trending favorably throughout the year. A decline in the Federal funds rate, which typically has an indirect impact on mortgage rate, may prove advantageous for borrowers.
According to the CME FedWatch Tool, the Fed will begin reducing interest rates in September, with a 95.3% probability that they will decrease to 5-5.25%. The likelihood of a further fall in interest rates becomes more prominent toward December, with the rates potentially dropping to 4.75-5%, supported by a likelihood of 40.1%. Interest rates may witness a further drop, falling to 4.5-4.75%, with a 53.9% likelihood supporting this estimate.
More Into Data
According to Jon Gray, Blackstone Inc. president, as quoted on Yahoo Finance, the decreasing cost of capital, coupled with the Fed reducing interest rates from September, is set to lay the groundwork for a new cycle of rising real estate values.
Per Jon Gray, Blackstone, the largest alternative asset manager globally, is ready to pounce on a rebound in property markets.
As per Yahoo Finance, new U.S. home construction increased 3%, reaching a 1.35 million annualized rate, boosted by a 19.6% jump in multifamily projects in June. A sign of future construction activity, building permits rose by 3.4% to a 1.45 million annual rate, driven by a rise in multifamily project applications.
ETFs in Focus
Moderating inflation levels may prove beneficial for the housing market. Falling inflation will keep mortgage rates low, making home ownership less expensive for first-time buyers.
Increased investor confidence that the Fed will implement a rate cut this September paints a rosy near-term outlook for the housing market, suggesting a continued downtrend in mortgage rates.
Below, we have highlighted a few funds for investors to capitalize on the market’s optimistic outlook.
iShares U.S. Home Construction ETF (ITB)
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 44 securities. The fund has gathered an asset base of $2.97 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained 19.01% over the past year and 16% since the beginning of July.
SPDR S&P Homebuilders ETF (XHB)
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 35 securities. The fund has gathered an asset base of $2.02 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained 26.90% over the past year and 14% since the beginning of July.
Invesco Building & Construction ETF (PKB)
Invesco Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 31 securities. The fund has amassed an asset base of $303.8 million and charges an annual fee of 0.62%.
Invesco Building & Construction ETF has gained 25.36% over the past year and 9.7% since the beginning of July.
Hoya Capital Housing ETF (HOMZ)
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 100 securities. The fund has gathered an asset base of $45.6 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained 13.085 over the past year and 9.5% since the beginning of July.
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