Home construction-related exchange traded funds surged Tuesday on speculation of an improving housing market after a widely observed indicator of single-family home prices rose at its fastest pace in 16 months.
On Tuesday, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) gained 1.9% and the iShares U.S. Home Construction ETF (NYSEArca: ITB) increased 2.6%.
Homebuilders were strengthening after the S&P/Case-Shiller Index of property values in 20 cities revealed a better-than-expected 5.8% gain year-over-year in November, the largest advance since July 2014, reports Sho Chandra for Bloomberg.
“Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market,” David Blitzer, chairman of the S&P index committee, said in a statement. “The consumer portion of the economy is doing well.”
The current low inventories has helped bolster property prices. The persistent low-rate environment has helped keep mortgage rates depressed and attract new home buyers. However, wage growth will be required to maintain a rising demand.
“There’s a positive underlying picture in the trend in home prices,” David Sloan, a senior economist at 4Cast Inc., told Bloomberg. “As long as demand is strong, the price appreciation will persist. We expect it to continue this year.”
In a National Association for Business Economics survey of economists at U.S. companies, respondents were optimistic that wages would rise ahead, Los Angeles Times reports.