Housing ETFs Sizzle With Opportunities as Economy Reopens
The coronavirus pandemic has largely affected the solid housing market momentum in the United States. However, along with sectors like industrial, financial, energy and consumer discretionary which have been gaining as economic activities resume, housing sector is also keeping investor hopes upbeat. Let’s take a quick look at what is working for the U.S. housing sector.
Current U.S. Housing Sector Scenario
The U.S. housing sector is expected to gain as mortgage rates are low and can provide support to the sector by adding to the affordability component. Also, the data on the U.S. builder confidence for May was encouraging. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for single-family, newly-built homes rose 7 points to 37 in May, after slipping to the lowest point since June 2012 in April, in comparison with 72 in March, 74 in February and 75 in January (per the NAHB press release).
Going on, sales of new single-family homes in the United States rose in April. The figure was expected to drop for the third consecutive month amid the coronavirus crisis. Sales of newly-constructed single-family homes, accounting for roughly 10% of all U.S. home sales, edged up 0.6% in April from the prior month to a seasonally adjusted annual rate of 623,000 units, per data released on May 26 by the Commerce Department. The April figure beat the consensus forecast of 497,000 by 25.4%. Notably, March’s sales pace was revised down to 619,000 units from the previously-reported 627,000 units.
The housing sector is also witnessing rising mortgage applications. The bouts of encouraging economic data are also raising the optimism. In this regard, U.S. manufacturing activity recovered from an 11-year low in May, signalling a rebound in economic activities. Jobless claims also declined for the first time during the pandemic in the week ended May 23, while readings on durable goods beat forecasts. Moreover, stronger-than-expected consumer confidence has led to some optimism.
Housing ETFs to Bet On
In such a scenario, here are a few housing ETFs that investors can keep an eye on:
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 $1.42 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 has a Zacks Rank #3 (Hold), with a High-risk outlook (read: 4 Best ETF Charts of Q1 Earnings).
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 34 securities in its basket. It has AUM of $812.3 million. The fund charges 35 bps in annual fees. It carries a Zacks Rank of 3, with a High-risk outlook (read: Why Housing Market & ETFs Are Due for a V-Shaped Recovery).
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 5.02% share. It has amassed assets worth $80.1 million. The expense ratio is 0.60%. It carries a Zacks Rank #3, with a High-risk outlook (see: all the Materials ETFs here).
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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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