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Will ETFs Gain From Upbeat US Homebuilder Confidence in November?

The U.S. housing sector continues to see strengthening demand, which has improved for the third straight month. However, increasing construction costs and persistent material supply-chain worries along with rising home prices remain in place. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes rose three points to 83 in November from 80 in October, 76 in September, 75 in August and 30 in April (the lowest since June 2012). The reading looks strong as any number above 50 signals improving confidence.

The upbeat data can be a positive for ETFs like iShares U.S. Home Construction ETF (ITB), SPDR S&P Homebuilders ETF (XHB), Invesco Dynamic Building & Construction ETF (PKB) and Hoya Capital Housing ETF (HOMZ), which have high exposure to companies belonging to the housing space.

The current sales conditions index increased three points to 89 in November. The metric measuring traffic of prospective buyers also saw a three-point rise to 68. Sales expectations for the next six months remained steady at 84, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast declined by a couple of points to 70. However, the South and Western Index rose by four and one point, respectively, to reach 84. The Midwest increased by four points to 72, per the release.

Going by the press release, NAHB Chairman Chuck Fowke reportedly said that, “The solid market for home building continued in November despite ongoing supply-side challenges. Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”

How’s the US Housing Market Placed?

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 bumped up 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 copper supplies and tariffs on steel imports are bumping up building costs. The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting the affordability as prices of existing and new homes are soaring.

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.

Meanwhile, consumers seem to be looking forward to buying homes, motor vehicles and major household durables. In fact, the buying attitude for vehicles and homes is expanding. The survey also showed that the proportion of the population planning to go on vacation has shot up to the highest level since February 2020, as mentioned in a Reuters article.

Commenting on the current housing market scenario, NAHB Chief Economist Robert Dietz, has also reportedly said that “In addition to well publicized concerns over building materials and the national supply chain, labor and building lot access are key constraints for housing supply. Lot availability is at multi-decade lows and the construction industry currently has more than 330,000 open positions. Policymakers need to focus on resolving these issues to help builders produce more housing to meet strong market demand.”

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

iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.

With AUM of $2.72 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) in annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy) with a High-risk outlook (read: 5 ETFs to Win Despite Downbeat U.S. GDP Growth).

SPDR S&P Homebuilders ETF XHB

A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF, follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.

XHB has AUM of $2.13 billion. SPDR S&P Homebuilders ETF charges 35 bps in annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2 with a High-risk outlook (read: Will Housing ETFs Gain as US New Home Sales Rise in September?).

Invesco Dynamic Building & Construction ETF PKB  

Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.4% share. The index is comprised of companies that are primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports.

Invesco Dynamic Building & Construction ETF has amassed assets worth $289.4 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold) with a High-risk outlook (read: 5 Sector ETFs to Play Robust October Jobs Data).

Hoya Capital Housing ETF HOMZ

Hoya Capital Housing ETF 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.

Hoya Capital Housing ETF has AUM of $79.4 million. HOMZ charges 30 bps in annual fees. Hoya Capital Housing ETF carries a Zacks ETF Rank #3 (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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