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

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  • IVZ

Amid the persistent headwinds of rising housing prices and supply-chain disturbances, the U.S. existing home sales data has pleasantly surprised investors. Per the National Association of Realtors (NAR) report, there was a 0.8% month-over-month increase in existing homes sales to a seasonally-adjusted annual rate of 6.34 million units in October. The figure surpassed economists’ expectations of sales declining to 6.20 million units, per a Reuters poll.  Increasing for the second consecutive month, the metric saw the highest level since January. However, existing-home sales were down 5.8% year over year.

The upbeat data can be a positive for ETFs like iShares U.S. Home Construction ETF ITB, SPDR S&P Homebuilders ETF XHB, Invesco Dynamic Building & Construction ETF PKB and Hoya Capital Housing ETF HOMZ, which have high exposure to companies belonging to the housing space.

First-time buyers accounted for 29% of sales in October, rising from 28% in September but comparing unfavorably with 32% in the year-ago period. Existing homes sales increased in the Midwest by 4.2% month over month in October. The figure was up 0.4% in the Southern region. Meanwhile, sales in the Northeast declined 2.6%. Existing-home sales were flat in the Western region.

Commenting on the housing market scenario, Lawrence Yun, NAR’s chief economist, reportedly said, " Home sales remain resilient, despite low inventory and increasing affordability challenges. Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment." He has also rightly mentioned that “Record-high stock markets and all-time high home prices have worked to significantly raise total consumer wealth and, when coupled with extended remote work flexibility, elevated housing demand in vacation regions."

Moreover, the median existing-home price for all housing types was $353,900, up 13.1% year over year in October, marking the 116th consecutive month of year-over-year gain (the longest-running streak on record).

Another housing data release came out to be encouraging. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes rose three points to 83 in November from 80 in October, 76 in September, 75 in August and 30 in April (the lowest since June 2012). The reading looks strong as any number above 50 signals improving confidence.

Discussing the current housing market scenario, Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, has also said that "While competition for homes has eased somewhat since the mania months earlier this year, competition is still fierce and prices are still rising at double-digit rates. The problem is especially acute for lower-income buyers given prices and home availability are still skewed toward higher-priced homes." This was mentioned in a Reuters article.

Housing ETFs That Might Gain

Against such a backdrop, here are a few housing ETFs that might gain on a slight improvement in the housing sector scenario:

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 $2.80 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: What Supply Chain Woes? Buy Housing ETFs On Earnings Strength).

SPDR S&P Homebuilders ETF

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 $2.18 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: 4 ETF Areas Near One-Year High With More Room for Growth).

Invesco Dynamic Building & Construction ETF 

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 5.9% share. The index comprises companies that are 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 $296.7 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.

Hoya Capital Housing ETF

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 represents the performance of the U.S. housing industry.

Hoya Capital Housing ETF has AUM of $79.8 million. HOMZ charges 30 bps in annual fees. Hoya Capital Housing ETF carries a Zacks ETF Rank #3.


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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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