Why Homebuilder ETFs are Soaring Amid Pandemic

Homebuilder stocks have soared during the coronavirus pandemic as the housing market continues to boom. The National Association of Home Builders’ index now stands at its highest level on record in data dating back to 1985.  

Housing starts for the month of July increased by 22.6%, significantly ahead of expectations. New home sales surged 36.3% during the month while sales of existing homes were up 24.7%.

Record low mortgage rates and migration from urban centers to suburbs are among the main reasons for the housing boom. The homeownership rate in the US is now at its highest levels since 2008, thanks mainly to young buyers. It remains to be seen whether housing can continue to remain strong despite surging lumber prices.

The most popular homebuilder ETF--the iShares U.S. Home Construction ETF (ITB)--is a market cap weighted ETF of home construction and related stocks. It is top heavy with four holdings D.R. Horton (DHI), Lennar (LEN), NVR (NVR) and PulteGroup (PHM) accounting for about 45% of the portfolio.

The SPDR S&P Homebuilders ETF (XHB), is an equal-weighted ETF that includes building-products and home-furnishing companies as well in addition to homebuilders. Whirlpool (WHR) and Masco (MAS) are among its top holdings.

To learn more about these ETFs, please watch the short video above.
 

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Disclosure: Neena owns shares of XHB in the ETF Investor Portfolio.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.