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Will ETFs Suffer as US Homebuilder Confidence Slips in February?
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The U.S. housing sector is again struggling with persistent supply-chain disturbances of building materials amid strengthening demand. This has led the home builder sentiment to decline for the second straight month. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped by a point to 82 in February this year from 83 in January, 84 in December, 83 in November and 30 in April (the lowest since June 2012). However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index rose by a point to 90 in February. The metric measuring traffic of prospective buyers saw a four-point decrease to 65. Sales expectations for the next six months also slipped by a couple of points to 80, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast rose by three points to 76. However, the South and Midwest Index declined by one point, respectively, to 86 and 73. The Western increased by a point to 89, per the release.
Going by the press release, NAHB Chairman Jerry Konter reportedly said that “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market. Policymakers must make it a priority to address supply chain issues that are harming housing affordability.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector delivered an impressive performance earlier despite the tough pandemic times. However, rising softwood lumber, material and labor costs remain a major hurdle for homebuilders. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs.
The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting the affordability as prices of existing and new homes are soaring.
Going on, increasing home prices and interest rates are weighing on housing affordability. Per NAHB press release, around 87.5 million households, making about 69% of all U.S. households are not being able to purchase a new median-priced home. In fact, according to their data, seven out of 10 households do not have the income to be eligible for a mortgage under standard underwriting terms and conditions.
The Federal Reserve has also hinted at taking aggressive measures to manage rising inflation levels. It is expected to begin raising its benchmark interest rate in March. In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates seven times this year, according to a CNBC article.
Commenting on the market, NAHB Chief Economist Robert Dietz has reportedly commented that “Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard. Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $2.21 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) in annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Rotate to Cyclical Sectors With These Top-Ranked ETFs).
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF, follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $1.84 billion. SPDR S&P Homebuilders ETF charges 35 bps in annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: ETF Strategies to Follow Amid Rising Yields).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.5% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports.
Invesco Dynamic Building & Construction ETF has amassed assets worth $235.8 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook.
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $77.2 million. The fund charges 30 bps in annual fees. It carries a Zacks ETF Rank #2 (see all the Materials ETFs here).
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Will ETFs Suffer as US Homebuilder Confidence Slips in February?
The U.S. housing sector is again struggling with persistent supply-chain disturbances of building materials amid strengthening demand. This has led the home builder sentiment to decline for the second straight month. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes slipped by a point to 82 in February this year from 83 in January, 84 in December, 83 in November and 30 in April (the lowest since June 2012). However, the reading looks strong as any number above 50 signals improving confidence.
The disappointing data can weigh on ETFs like iShares U.S. Home Construction ETF (ITB - Free Report) , SPDR S&P Homebuilders ETF (XHB - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and Hoya Capital Housing ETF (HOMZ - Free Report) , which have high exposure to companies belonging to the housing space.
The current sales conditions index rose by a point to 90 in February. The metric measuring traffic of prospective buyers saw a four-point decrease to 65. Sales expectations for the next six months also slipped by a couple of points to 80, per the NAHB press release. The three-month moving averages for regional HMI scores in the Northeast rose by three points to 76. However, the South and Midwest Index declined by one point, respectively, to 86 and 73. The Western increased by a point to 89, per the release.
Going by the press release, NAHB Chairman Jerry Konter reportedly said that “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market. Policymakers must make it a priority to address supply chain issues that are harming housing affordability.”
How’s the U.S. Housing Market Looking?
The U.S. housing sector delivered an impressive performance earlier despite the tough pandemic times. However, rising softwood lumber, material and labor costs remain a major hurdle for homebuilders. Moreover, there was a sharp rise in plywood prices. Scarcity in copper supplies and tariffs on steel imports are bumping up building costs.
The scanty global supply of semiconductors shrank the supplies of some appliances, per a Reuters article. These factors are affecting the affordability as prices of existing and new homes are soaring.
Going on, increasing home prices and interest rates are weighing on housing affordability. Per NAHB press release, around 87.5 million households, making about 69% of all U.S. households are not being able to purchase a new median-priced home. In fact, according to their data, seven out of 10 households do not have the income to be eligible for a mortgage under standard underwriting terms and conditions.
The Federal Reserve has also hinted at taking aggressive measures to manage rising inflation levels. It is expected to begin raising its benchmark interest rate in March. In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates seven times this year, according to a CNBC article.
Commenting on the market, NAHB Chief Economist Robert Dietz has reportedly commented that “Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard. Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”
Housing ETFs to Track
Against such a backdrop, here are a few housing ETFs that might feel the heat from the roughing up housing sector scenario:
iShares U.S. Home Construction ETF (ITB - Free Report)
iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.
With AUM of $2.21 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks, heavily focused on the top two firms. ITB charges 41 basis points (bps) in annual fees. iShares U.S. Home Construction ETF carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Rotate to Cyclical Sectors With These Top-Ranked ETFs).
SPDR S&P Homebuilders ETF (XHB - Free Report)
A popular choice in the homebuilding space, SPDR S&P Homebuilders ETF, follows the S&P Homebuilders Select Industry Index. SPDR S&P Homebuilders ETF holds about 35 securities in its basket.
XHB has AUM of $1.84 billion. SPDR S&P Homebuilders ETF charges 35 bps in annual fees. SPDR S&P Homebuilders ETF carries a Zacks ETF Rank #2, with a High-risk outlook (read: ETF Strategies to Follow Amid Rising Yields).
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding a basket of well-diversified 31 stocks, each accounting for less than a 5.5% share. The index comprises companies primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airports.
Invesco Dynamic Building & Construction ETF has amassed assets worth $235.8 million. The total expense ratio is 0.60%. Invesco Dynamic Building & Construction ETF carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook.
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the Hoya Capital Housing 100 Index, a rules-based Index designed to track the 100 companies that collectively represent the performance of the U.S. housing industry.
Hoya Capital Housing ETFhas AUM of $77.2 million. The fund charges 30 bps in annual fees. It carries a Zacks ETF Rank #2 (see all the Materials ETFs here).