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Housing ETFs to Gain on Soaring Existing Home Sales

The housing sector continues to be a bright spot in the U.S. economy amid the coronavirus crisis as the sales of existing homes grew for the fifth straight month in October. National Association of Realtors (NAR’s) data showed a 4.3% month-over-month rise in existing homes sales  to a seasonally adjusted annual rate of 6.85 million units in October. Further, existing home sales rose 26.6% year over year.

First-time buyers accounted for 32% of sales last month, up from 31% year over year and September 2020. Existing homes sales increased in all four U.S. regions during October in comparison to last month and year over year, led by an 8.6% jump from September in the Midwest. Sales in the Northeast inched up 4.7% while the same rose 3.2% and 1.4% in the South and West, respectively.

Commenting on the housing market scenario, Lawrence Yun, NAR’s chief economist, said that “the surge in sales in recent months has now offset the spring market losses. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market's growth to continue into 2021," per the official press release. He projects existing-home sales growth of 10% to 6 million in 2021.

Moreover, the median existing-home price for all housing types was $313,000, up 15.5% year over year in October, marking the 104 straight month of year-over-year gains.

Highlighting the encouraging housing market scenario, 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 90 points in November from 85 in October, 83 points in September and 30 in April (the lowest since June 2012). Last November, the index was at 71. Notably, any reading above 50 is considered positive and signals at improving confidence.

Moreover, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, total housing starts rose 4.9% to a seasonally-adjusted annual rate of 1.53 million units in October. The figure also beat September’s revised figure of 1.46 million units along with the year-ago figure of 1.34 million units. The reading surpassed analysts’ expectations of 1.46 million units, per a Reuters’ poll.

Current Housing Market Scenario

Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe that support from the Federal Reserve is keeping rates at such modest levels. The housing market is also steadily benefiting from changing demographical preferences of a large chunk of population as people are now increasingly looking for work-from-home-friendly properties. Notably, people are shifting from city centers to suburbs and other low-density areas looking for spacious accommodations for home offices and schools, per the sources.

Meanwhile, rising lumber prices, material and labor costs can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and a second wave of coronavirus outbreak may impede momentum of the U.S. housing market. Moreover, there is a fear that interest rates may rise with positive news regarding the coronavirus vaccine flowing into the market.

Thus, Danielle Hale, chief economist at realtor.com has said that “mortgage rates could tick up in the months ahead and test the strength of this seemingly unstoppable housing market. Additionally, rising coronavirus cases could also dampen sales. This spring we saw both buyers and sellers hit ‘pause’ on their plans in areas where coronavirus spread was prevalent. While buyers were relatively quick to resume, sellers have come back more slowly,” per a CNBC article.

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 AUM of $2.13 billion, it holds a basket of 46 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees (read: Mortgage Rates Hit Record Low: ETF Winner & Loser).

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 $1.46 billion. The fund charges 35 bps in annual fees (read: Tap Homebuilding ETFs on Upbeat Earnings & Vaccine Hopes).

Invesco Dynamic Building & Construction ETF PKB  

This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 30 stocks, each accounting for less than a 5.51% share. It amassed assets worth $156.4 million. The expense ratio is 0.59% (read: all the Materials ETFs here).

Hoya Capital Housing ETF HOMZ

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the US Housing Industry. It has AUM of $38.2 million. The fund charges 30 bps in annual fees (read: ETFs & Stocks to Ride on a Booming Housing Market).

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SPDR S&P 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
 
Hoya Capital Housing ETF (HOMZ): ETF Research Reports
 
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