Homebuilder Stocks and ETFs Gain on Solid Data
The housing market is on fire this summer with a solid start to the third quarter. This is especially true given the latest upbeat data, which showed that new home construction jumped to an almost eight-year high in July and homebuilder confidence for this month surged to a level not seen in decades (read: Homebuilder ETFs Soar on Hot-Selling Homes).
U.S. housing starts rose 0.2% to a seasonally adjusted annual rate of 1.21 million homes, much higher than the market expectation of 1.19 million. This marks the highest reading since October 2007 and was mainly driven by a 12.8% gain in construction of single-family houses. Homebuilder confidence shot up to the highest level since November 2005 as indicated by the National Association of Home Builders/Wells Fargo sentiment index that rose one point in August.
However, new applications for building permits, a construction bellwether for the coming months, fell 16.3% to an annual rate of 1.12 million after increasing for three months. This represents the biggest drop since July 2008. The weakness seems temporary and short-lived given the growing demand for homes, accelerating job growth, rising wages, affordable mortgage rates, and increasing consumer confidence. Notably, average mortgage rates remained under 4%, about two percentage points below the historical rate (see: all the Materials ETFs here).
The growing housing market has been pumping optimism into the homebuilder stocks and ETFs over the past couple of months with solid gains this week. In particular, Lennar Corporation (LEN) jumped 6.6% in the past two days to hit an eight and a half year high, DR Horton (DHI) surged 4.9% to a 9-year high and Toll Brothers (TOL) climbed 5.6% to 10-year high. Other homebuilders like PulteGroup (PHM), KB Home (KBH), Ryland Group Inc. (RYL), Beazer Homes (BZH) and Meritage Homes (MTH) are up 3.5%, 4.8%, 4.1%, 4.6% and 5.3%, respectively, so far this week.
Homebuilder ETFs – iShares U.S. Home Construction ETF (ITB), SPDR S&P Homebuilders ETF (XHB) and PowerShares Dynamic Building & Construction Fund (PKB) – gained about 3.5%, 2.4% and 1.1%, respectively, over the past two trading sessions. From a year-to-date look, ITB, XHB and PKB has risen 12.9%, 13.3% and 16.7%, respectively, and is easily outpacing the broad sector (XLB) and broad market (SPY) funds. XLB lost nearly 5.2% while SPY gained 3.4% in the same time frame (read: Homebuilders ETF Hits New 52-Week High).
All the three ETFs have a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. The outperformance in the homebuilding space is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 31%.
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SPDR-SP HOMEBLD (XHB): ETF Research Reports
ISHARS-US HO CO (ITB): ETF Research Reports
PWRSH-DYN BLDG (PKB): ETF Research Reports
D R HORTON INC (DHI): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis Report
TOLL BROTHERS (TOL): Free Stock Analysis Report
KB HOME (KBH): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis Report
RYLAND GRP INC (RYL): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis Report
BEAZER HOMES (BZH): Free Stock Analysis Report
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