Economic Fudamentals Support Homebuilder ETFs
Home construction-related exchange traded funds are outperforming the markets as upbeat housing data and an optimistic spring outlook help buttress homebuilders.
The SPDR S&P Homebuilders ETF (XHB) was up 0.6% Tuesday and iShares U.S. Home Construction ETF (ITB) gained 0.3% while the S&P 500 index fell 0.4%. Year-to-date, ITB increased 9.3% and XHB rose 8.1% while the S&P 500 added 1.8%.
Fueling the recent gains in the homebuilders sector, lower inventories continue to drive up home prices, with the S&P/Case-Shiller index of property values up 4.6% from January 2015, the largest gain since September, Bloomberg reports. [Early Spring Numbers Reveal Homebuilder ETFs’ Underlying Strength]
“The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices,” David Blitzer, chairman of the S&P index committee, said in a statement.
According to Nationwide’s Index of Healthy Housing Markets, the U.S. housing market is the healthiest it’s been in 15-years, the Columbus Dispatch reports.
“That doesn’t mean the fastest growing but the most sustainable. The odds of a housing downturn are very small,” David Berson, Nationwide’s chief economist, said in the article.
Deutsche Bank chief international economist Torsten Sløk has pointed to several promising indicators that could bolster the housing market over the next few months and years, reports Andy Kiersz for Business Insider. [The Stars Align for Homebuilder ETFs]
For starters, U.S. home prices are steadily rising to pre-crisis conditions and are back at 2005 levels. Supporting the rising prices, the U.S. housing market may be moving closer to a shortage as the number of available homes for sale dips to its lowest in over a decade.
While many millennials have been forced back to live with families since the recession, Sløk believes that the trend may be reversing and could lead to an increase in housing demand. Moreover, the group of millennials are experiencing a recovery in employment, with the employment rate of people age 25 to 34 back to pre-crisis average, which will also help foster housing demand.
Many have opted to rent as the economy improved, but rental vacancy rates are now lower than pre-bubble average, suggesting that there is a shortage of rental space, which could drive up rent costs. Higher rents may be the necessary fillip for renters to become new homeowners in the coming years.
The average share of distressed sales among all home sales are now back down to 9%, compared to close to 40% in 2010. Additionally, foreclosure rates have receded to pre-crisis levels.
iShares U.S. Home Construction ETF
For more information on the housing market, visit our homebuilders category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
