This article was originally published on ETFTrends.com.
Homebuilder stocks and home construction sector-related exchange traded funds rose Tuesday on hopes of a recovering economy after a sharp increase in new U.S. single-family homes over May and improving business activity.
On Tuesday, the iShares U.S. Home Construction ETF (NYSEArca: ITB) increased 1.0%, SPDR S&P Homebuilders ETF (NYSEArca: XHB) advanced 1.4%, and Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) rose 1.0%.
The homebuilder segment strengthened after the Commerce Department revealed new home sales climbed 16.6% to a seasonally adjusted annual rate of 676,000 units over May, Reuters reports. In comparison, economists projected a 2.9% rise in new home sales to a pace of 640,000.
“The jump in new home sales is a nice indicator of what’s to come because it’s based on contract signings, a somewhat early stage of the home buying process,” Danielle Hale, chief economist at Realtor.com, told MarketWatch. “A similar surge in next week’s pending home sales, which cover the much larger existing homes market, will be good confirmation that the low point in home sales is likely behind us.”
The strong new home sales numbers come after data last week that showed home purchase applications were at an 11-year high in mid-June and building permits rebounded strongly in May as well.
The market for new homes has found support from record-low interest rates as the Federal Reserve implements an aggressively loose monetary policy to support market liquidity and the coronavirus-hit economy. Furthermore, there is an increasing preference among buyers for single-family homes away from city centers due to the shift towards at-home work amid the COVID-19 outbreak.
Homebuilding also somewhat rebounded in May after a drop off in the March and April months, but last month's rise in new home sales did little to offset the plunge in sales of existing homes over April and May. Economists remain cautious and anticipate a record falloff in residential investment over the second quarter.
Observers also warned that investors shouldn't expect a quick rebound in the housing market since unemployment remains at record highs and companies have been cutting back on new hires as they deal with weak demand and maintain lower costs.
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