This article was originally published on ETFTrends.com.
Homebuilder stocks and sector-related ETFs have surged this year, rebounding to their previously record highs, as a return to a low-interest rate environment and rising housing starts helped fuel new home sales.
According to the National Association of Home Builders, builder confidence is now the highest since 1999, the Wall Street Journal reports.
Homebuilders ramped up volume partially by focusing on more affordable homes. For example, large builders like Meritage Homes Corp. and MDC Holdings Inc. shifted tactics to churn out a higher number of less-expensive homes as a way to a generation of millennials.
Meritage Dip, With A Home Jump
Consequently, over the third quarter of this year, the average price of a Meritage home dipped by 4.4% but the number of home orders jumped 24% in response to higher demand in the entry-level category.
“You’re seeing shifts down in average price,” Jonathan Boise, a home-builder analyst at Fitch Ratings, told the WSJ. “Typically, for the builders that are focusing on entry-level product, that’s resulting in stronger growth than their peers.”
Some homebuilders and analysts, though, are wary about the future growth next year. Fitch, for instance, warned that new-home sales could only grow 1.5% in 2020, compared to the quick clip of 9% in 2019.
Nevertheless, the low interest rate environment should still help fuel additional new home purchases, helping new buyers lock in cheap mortgages. Fannie Mae projects housing-construction starts will also rise 10% next year to reach a post-recession high, providing a steady supply of new and affordable housing.
Consolidation could also help support the homebuilder sector. Analysts argued that mergers and acquisitions could continue in 2020, and publicly traded builders could make up a greater share of total home-building. Fitch even anticipates regional builders focused on the entry level to be attractive buyout targets.
For more information on the housing market, visit our homebuilders category.
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