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ETFs to Gain as Homebuilders Confidence is Near All-Time High

Sweta Jaiswal, FRM
·3 mins read

The National Association of Home Builders’ monthly confidence index has managed to remain near the highest index reading since June 1999 that was recorded in December 2019. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence dropped just one point to 74 in February compared with 75 in January, 76 in December and 62 in the year-ago period (read: Housing ETFs Soar on Upbeat Earnings With More Room to Run).

Notably, all the three components of the index had dropped by a point too. The current sales conditions came in at 80, the buyer traffic stood at 57, with sales expectations coming to 79.

Regionally, in the Northeast, the index rose five points to 67. Moreover, the South index increased a couple of points to 79. Meanwhile, the Western index was down four points to 82, with the Midwest falling by five points to 62 (read: Homebuilder ETFs Shining in 2020: Will This Continue?).

Low Mortgage Rates Support the Optimism

After three rate cuts in 2019, the Fed hinted at keeping interest rates unchanged in 2020 unless there is any major change in the economic outlook. It is widely believed that declining mortgage rates have helped the housing sector, as lower borrowing costs are making new houses more affordable. Fears surrounding the aggravating coronavirus outbreak are also inducing low mortgage rates. This is because mortgage rates are guided by the treasury yields that are sliding due to a rise in demand for safe havens (read: Play These Bond ETFs to Keep the Coronavirus Fear at Bay).

Homebuilder ETFs Poised to Gain

Builders continue to bear the brunt of rising development and construction costs. They are still grappling with regulatory burdens, deficit of lots and lack of skilled labor. Against the backdrop, let’s take a look at a few homebuilder ETFs.

iShares U.S. Home Construction ETF ITB — up 12.1% year to date

This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. With an AUM of $1.47 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 ETF Rank #2 (Buy), with a High-risk outlook (read: Should You Buy Homebuilder ETFs Now?).

SPDR S&P Homebuilders ETF XHB — up 7.1%

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 an AUM of $846.6 million. The fund charges 35 bps in annual fees and carries a Zacks ETF Rank of 2, with a High-risk outlook (read: Sector ETFs to Watch Out for Until Phase-2 Trade Deal).

Invesco Dynamic Building & Construction ETF PKB — up 9%

This fund follows the Dynamic Building & Construction Intellidex Index, holding well-diversified 30 stocks in its basket, with each accounting for less than a 5.58% share. It has amassed assets worth $114.7 million. Expense ratio is 0.60%. It is a Zacks #2 Ranked ETF with a High-risk outlook (see: all the Materials ETFs here).

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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
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