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Will Housing ETFs Gain as US New Home Sales Rise in August?

The U.S. housing sector witnessed some positive data releases as new home sales rose for the second straight month in August. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales were up 1.5% in August to a seasonally-adjusted annual rate of 740,000 units. This compares favorably with July’s upwardly revised sales of 729,000 units from 708,000 units.

Moreover, the metric beat economists’ forecast of 714,000 units in August, per a Reuters poll. However, new home sales declined 24.3% year over year in August. The same is considered a leading housing market indicator since it is counted at the signing of a contract, per a Reuters article.

New home sales rose 6% in the Southern region in August. The metric also increased 1.4% in the West. Sales in the Northeast jumped 26.1% in August. However, Midwest sales declined 31.1% in the previous month. It is important to note that there was a 20.1% year-over-year rise in median new house price to $390,000 in August, per a Reuters article. Also, the number of new homes on market in August rose to 378,000 (the highest since October 2008) from 366,000 in July.

How’s the US Housing Market Looking?

The U.S. housing sector pleased investors with an impressive performance despite the tough pandemic times. However, rising softwood lumber, material and labor costs remained a major hurdle for homebuilders. The supply-chain disturbances majorly at saw mills and ports caused by the lockdown to contain the coronavirus outbreak also escalated concrete, metal products, appliances and other expenses, as mentioned in a FOX Business article.

Moreover, there was a sharp rise in plywood prices. Scarcity in the supplies of copper along with tariffs on steel imports is also bumping up building costs. The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting affordability as the prices of existing and new homes are soaring.

Per the NAHB, the lumber prices plunged more than 60% from the peak reached in May but overall aggregate residential construction material costs rose 13% on an annual basis in the first eight months of 2021, as mentioned in a Reuters article.

Consumers seem disturbed about the elevated prices of homes, vehicles and household durables. In fact, the buying attitude for vehicles and homes is contracting.

The housing market steadily benefited from changing demographic preferences of a large chunk of population as people increasingly looked for work-from-home-friendly properties. Individuals were shifting from city centers to suburbs and other low-density areas, looking for spacious accommodations for home offices and schools, per sources.

Notably, Mark Palim, deputy chief economist at Fannie Mae in Washington has said, “This report continues to highlight the ongoing difficulties that homebuilders are facing as they attempt to work through their current construction backlog, due to a shortage of labor and elevated material costs and outright shortages," per a Reuters article.

Housing ETFs That Might Gain

Against such a backdrop, here are a few housing ETFs that might gain on slight improvement in the 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 $2.40 billion, it holds a basket of 46 stocks, heavily focused on the top two firms. The product charges 41 basis points (bps) in annual fees (read: 5 ETF Areas for Investors to Consider Amid the September Slump).

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 $1.77 billion. The fund charges 35 bps in annual fees.

Invesco Dynamic Building & Construction ETF PKB  

This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 32 stocks, each accounting for less than a 5.38% share. It has amassed assets worth $279.2 million. The expense ratio is 0.59% (read: Ida Aftermath Puts These ETF Areas in Focus).

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 represents the performance of the U.S. housing industry. It has AUM of $74.8 million. The fund charges 30 bps in annual fees (see all the Materials ETFs here).


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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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