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

The U.S. housing sector witnessed some positive data releases as new home sales surged to a six-month high in September. However, higher house prices remain a major hurdle. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales were up 14% in September to a seasonally-adjusted annual rate of 800,000 units. This compares favorably with August’s downwardly revised sales of 702,000 units from 740,000 units stated previously.

Moreover, the metric beat economists’ forecast of 760,000 units in September, per a Reuters poll. However, new home sales declined 17.6% year over year last month. 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 in the Southern, West and Northeast regions in September. However, the metric declined in the Midwest region. The number of new homes on the market in September remained flat at 379,000 with the prior month.

How’s the US Housing Market Looking?

The U.S. housing sector had earlier delivered 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 sawmills 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 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 prices of existing and new homes are soaring. In fact, the median new house price surged 18.7% year over year in September to $408,800.

The U.S. housing space might have to grapple with rising interest rates in the near term as the Fed will begin the tapering process. In fact, according to the Mortgage Bankers Association, home loan interest rates have already started to increase, with the average 30-year mortgage rate rising to 3.18% in early October (the highest since June).

The recently released minutes from the Federal Open Market Committee’s September meeting highlighted that the Fed might begin tapering the fiscal stimulus support program from mid-November.

The central bank is expected to roll back the month-end bond purchases by cutting $10 billion of $80 billion a month in Treasury and $5 billion from $40 billion a month in mortgage-backed securities (per a CNBC article). If everything goes well, the Federal Reserve expects to finish off purchases by mid-2022.

Housing ETFs That Might Gain

Against such a backdrop, here are a few housing ETFs that might gain on a 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 $2.79 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 ETFs to Cash In On Record High U.S. Household Net Worth).

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 $1.99 billion. The fund charges 35 bps in annual fees (read: Top-Ranked ETFs That Are Up At Least 25% So Far This Year).

Invesco Dynamic Building & Construction ETF PKB  

This fund follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.9% share. It has amassed assets worth $278.4 million. The total expense ratio is 0.60%.

Hoya Capital Housing ETF HOMZ

The fund seeks to provide investment results that before fees and expenses, generally correspond 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 $77.1 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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