The latest new home sales data is encouraging as sales of newly-built, single-family homes rose to the highest in July since December 2006 in the United States. Per the Commerce Department data, new home sales rose 13.9% in July to a seasonally adjusted annual rate of 901,000 units. This compares favorably with June’s sales pace that was revised to 791,000 units. Year over year, new home sales rose 36.3% in July from the year-ago estimate of 661,000. It is being believed that the housing market is getting support from low mortgage rates and changing demand patterns with increasing preference for houses in low-density residential locations amid the coronavirus outbreak. As more employees are being allowed to work remotely, the demand for a house in a less-populated location is increasing among the masses, per a Reuters article.
New home sales, which make for 13% of housing market sales, rose in the Midwest, South and West but declined in the Northeast. Notably, there was a 7.2% year-over-year rise in median new house price to $330,600 in July, per a Reuters article.
Commenting on the data, Robert Dietz, Chief Economist of the National Association of Home Builders (NAHB) said that, “new home sales are benefitting from the suburban shift, as prospective buyers seek out affordable markets in order to obtain more residential space. Moreover, sales are increasingly coming from homes that have not started construction, with that count up 34 percent year-over-year. In contrast, sales of completed, ready-to-occupy homes are down almost 24 percent. These measures point to continued gains for single-family construction ahead,” per THE WORLD PROPERTY JOURNAL article.
Is Housing Market Sizzling With Opportunities?
The recently-released data on 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 78 points in August from 72 in July, 58 in June, 37 in May and 30 in April (the lowest since June 2012). The metric also surpassed analysts’ expectations of the reading, rising to 73, per a Reuters’ poll. Going on, August’s reading was the highest in the 35-year long history of the index, matching the December 1998 record. Notably, any reading above 50 is considered positive and signals at improving confidence.
Another round of upbeat data from the U.S. housing market signals that the sector is gaining the momentum back. According to the U.S. Housing and Urban Development and Commerce Department, total housing starts rose 22.6% (the biggest gain since October 2016) to a seasonally-adjusted annual rate of 1.50 million units in July, per a NAHB press release. The figure is above June’s revised figure of 1.22 million units. The reading surpassed analysts’ expectations of 1.24 million units, per a Reuters’ poll.
Building permits, a construction pointer for the coming months, jumped 18.8% to an annualized rate of 1.50 million units in July.
Going on, sales of existing homes in July witnessed the strongest monthly rise in the survey’s history since 1968. National Association of Realtors’ (NAR) data showed a 24.7% rise in existing homes sales to a seasonally adjusted annual rate of 5.86 million units in July (the highest sales pace since December 2006). Furthermore, existing home sales rose 8.7% year over year.
Factors Supporting the Momentum
Low interest rates are boosting demand in the housing market, resulting in an increase in mortgage applications. Analysts believe support from the Federal Reserve is helping keep rates at such low levels. Also, rising uncertainty related to the coronavirus outbreak is driving demand for safe-haven assets like U.S. Treasuries (per the Reuters article). This, in turn, will help drive consumer spending and demand in the housing market.
Meanwhile, rising lumber prices, which have more than doubled since mid-April, can result in sluggishness in the housing market despite low interest rates. Also, low employment levels and coronavirus outbreak will continue to impede U.S. housing market momentum.
Housing ETFs to Shine
Given the encouraging scenario in the U.S. housing market, let’s take a look at a few homebuilder ETFs.
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 $2.24 billion, it holds a basket of 44 stocks, heavily focused on the top two firms. The product charges 42 basis points (bps) in annual fees. It carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read: 5 Sector ETFs Soaring Halfway Through Q3).
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 $1.19 billion. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 3, with a High-risk outlook (read: all the Materials ETFs here).
Invesco Dynamic Building & Construction ETF PKB
This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 32 stocks in its basket, each accounting for less than a 5.45% share. It has amassed assets worth $125.5 million. The expense ratio is 0.60%. It is a Zacks #3 Ranked ETF, with a High-risk outlook (see: Hurricane Laura to Hurt/Boost These ETF Areas).
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SPDR SP 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
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