ETFs to Gain as US New Home Sales Hit 9-Month High Mark

The U.S. housing sector witnessed some positive data releases as new home sales surged to a nine-month high in December. However, higher house prices and insufficient inventory remain major hurdles. Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, new home sales were up 11.9% in December to a seasonally-adjusted annual rate of 811,000 units. This compares favorably with November’s revised sales of 725,000 units.

Also, the metric surpassed economists’ forecast of 760,000 units in December, per a Bloomberg poll. However, new home sales declined 14% 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 Midwest regions in November. Notably, the Western region witnessed the strongest purchase figures since January 2021 (per a Bloomberg article). However, the metric declined in the Northeast region. Median new house price witnessed a 3.4% year-over-year rise to $377,700 in December, per a Bloomberg article. Also, the number of new homes on the market rose nominally in December to 403,000.

How’s the U.S. Housing Market Looking?

The U.S. housing sector delivered an impressive performance earlier despite the tough pandemic times. However, rising softwood lumber, material and labor costs remained a major hurdle for homebuilders. 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.

Meanwhile, the housing market steadily benefited from low borrowing costs and changing demographic preferences of a large chunk of the 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.

However, the Federal Reserve might take aggressive measures to manage rising inflation levels. It is expected to begin raising its benchmark interest rate in March.

It is being assumed that rising inventory of fully completed homes and possibilities of the central bank hiking rates may have supported the upside in the new home sales in December.

Housing ETFs to Track

Against such a backdrop, here are a few housing ETFs that might gain from the improving 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 $2.70 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: Rotate to Cyclical Sectors With These Top-Ranked ETFs).

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 $2.14 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: 5 ETF Predictions for 2022).

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 5.6% share. The index comprises companies 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 $257.5 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: 4 Sector ETFs to Play Despite Soft December 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 represent the performance of the U.S. housing industry.

Hoya Capital Housing ETFhas AUM of $77.3 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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