Inside the Solid Homebuilder Trends
Homebuilder confidence has risen this month on expectations that the President-elect Donald Trump administration will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index increased to 46 in November, up from 43 in October. Pending U.S. home sales unexpectedly rose to a seven-month high in October, rising 5.4% year over year. The National Association of Realtors’ Pending Home Sales Index, based on signed contracts, rose 2% from 75.9 in September to 77.4 – the highest since March. According to the latest Mortgage Bankers Association, the average rate for the 30-year fixed mortgage fell to 6.81% this week from 6.84% last week. This will likely ease affordability challenges for homebuyers in the coming months, prompting an increase in prospective buyers. As such, lower mortgage rates have led to increased housing market activity, leading to a rise in ETFs.
Further, the Fed rate cuts have buoyed the housing market in recent weeks. Federal Reserve Chair Jerome Powell, in the latest meeting, slashed interest rates for the second time this year. The key interest rate was cut by 25 bps, bringing down the benchmark rate to 4.5%-4.75%, following the 50-bps cut in September 2024. Lower interest rates generally lead to reduced borrowing costs, helping businesses to expand their operations more easily, thereby benefiting the sector.Moreover, the belongs to a solid industry, which seems attractively valued at current levels with a P/E ratio of 9.96 versus 20.31 for the broader market index ETF ( – ).
Reason to Worry
The sector is facing several headwinds such as an ongoing shortage of labor and buildable lots as well as elevated building material prices. The housing starts declined 3.1% in October to 1.311 million units.
ETFs in Focus
iShares U.S. Home Construction ETF 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 $3.7 billion, iShares U.S. Home Construction ETF holds a basket of 44 stocks with a heavy concentration on the top two firms. The product charges 39 bps in annual fees and trades in a heavy volume of around 1.5 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold) with a High risk outlook.SPDR S&P Homebuilders ETF SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $2.5 billion and an average daily volume of 2 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.Invesco Building & Construction ETF Invesco Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5% of the assets. Invesco Building & Construction ETF has amassed assets worth $457.1 million and sees a lower volume of roughly 20,000 shares per day on average. Expense ratio comes in at 0.57%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #3 with a High risk outlook.Hoya Capital Housing ETFHoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies and real estate services and technology firms, by tracking the Hoya Capital Housing 100 Index. Hoya Capital Housing ETF has accumulated $49 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 2,000 shares and has a Zacks ETF Rank #3.More By This Author:5 ETFs That Deserve Special Thanks In 2024Gold ETFs Regain Luster: Will The Rally Continue?ETFs In Focus As Deere Beats On Q4 Earnings
Homebuilder ETFs Gain Traction
