Will Housing ETFs Gain as US New Home Sales Rise in July?
The U.S. housing sector sees favorable data releases as new home sales increase in July after decreasing for three successive months.
The U.S. housing sector witnessed some positive data releases amid new home sales, which rose in July after declining for three straight months. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales were up 1% in July to a seasonally-adjusted annual rate of 708,000 units. This compares favorably with June’s upwardly revised sales of 701,000 units from 676,000 units.
Moreover, the metric beat economists’ forecast of 700,000 units in July, per a Reuters poll. However, new home sales declined 27.2% in July year over year. 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 inched up 1.3% in the Southern region in July. The metric was also up 14.4% in the West. Northeast and Midwest sales, however, dropped 24.1% and 20.2%, respectively, in the previous month. It is important to note that there was an 18.4% year-over-year rise in median new house price to $390,500 in July, per a Reuters article. Also, the number of new homes on market in July rose to 367,000 (the highest since November 2008) from 348,000 in June.
How’s the US Housing Market Looking?
The U.S. housing sector has been grappling with rising softwood lumber, material and labor costs for a while now. The supply-chain disturbances caused by the lockdown to contain the coronavirus outbreak induced a rise in concrete, metal products, appliances and other expenses as mentioned in a FOX Business article.
There was also a sharp rise in prices of plywood. Besides, scarcity in supplies of copper along with tariffs on steel imports is also bumping up building costs. Scanty supplies of semiconductors, globally, reduced supplies of some appliances, per a Reuters article. These factors are affecting affordability as prices of the existing and new homes are soaring.
The increasing concerns about the surging coronavirus cases due to the Delta variant continue to dampen U.S. consumer sentiments. The metric surprisingly slid to a pandemic-era low level in early August compared with a reading of 70.8 recorded in April 2020. The University of Michigan’s preliminary consumer sentiment index fell to 70.2 in August from 81.2 last month. The metric also lagged the market’s forecast of 81.2.
The housing market steadily benefited from the changing demographical 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 the sources.
Commenting on the current market conditions, Mark Palim, deputy chief economist at Fannie Mae in Washington said that "We expect sales to move upward as the year continues, as sufficient demand is present, but the pace at which acceleration occurs will likely be determined by the speed at which homebuilders can clear their current backlogs and overcome material availability and other supply constraints," per a Reuters article.
Housing ETFs That Might Gain
Against such a backdrop, here are a few housing ETFs that might gain from the improving new home sales metric:
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 an AUM of $2.43 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: Are ETFs in Trouble as US Homebuilder Confidence Drops in August?).
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 an AUM of $1.90 billion. The fund charges 35 bps as annual fees (read: Buy These 7 Amazing ETFs Trading at Low P/E Ratios).
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 5.94% share. It amassed assets worth $292.4 million. The expense ratio is 0.59% (read: Stocks & ETFs Winners From Senate's Nod for Infrastructure Bill).
Hoya Capital Housing ETF HOMZ
The fund aims 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 U.S. housing Industry. It has an AUM of $80.8 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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