The housing market and homebuilder exchange traded funds have a little spring in their step as builders ramp up construction to meet the growing demand.
The SPDR S&P Homebuilders ETF (NYSEArca: XHB) was up 0.5% Tuesday while the iShares U.S. Home Construction ETF (NYSEArca: ITB) was 0.9% higher. Year-to-date, XHB rose 7.2% and ITB gained 9.2%.
Reflecting the positive outlook in the housing market, the National Association of Home Builders/Wells Fargo sentiment gauge, a measure of U.S. builders’ confidence, increased in April for the first time in five months, Bloomberg reports.
The gauge of homebuilder confidence rose to 56, its highest since January, compared to a revised 52 in March. Readings above 50 are positive.
Supporting the housing market, the warmer weather is allowing builders to work on more homes. Meanwhile, the market is under tight inventory, which has helped push up home prices. The expanding job market and potential rise in wage growth would also help fuel demand as the traditional Spring selling season starts. Moreover, the low interest-rate environment has kept borrowing costs near record lows – according to Freddie Mac, the 30-year fixed-rate mortgage dipped to a nine-week low of 3.66% as of April 9. [Economic Fudamentals Support Homebuilder ETFs]
“As the spring buying season gets under way, homebuilders are confident that current low interest rates and continued job growth will draw consumers to the market,” NAHB Chairman Tom Woods said.
Home construction companies are also expanding operations. According to the Commerce Department, the annualized rate of new housing authorized by building permits outstripped new home construction by 205,000 units in February, the widest gap since January 2007, reports Victoria Stilwell for Bloomberg.
Looking ahead, the Commerce Department could reveal that housing starts rose to a 1.04 million pace in March from 897,000 in February, according to median estimates.
Along with their exposure to homebuilders, the sector-related ETFs also include some discretionary names that would also benefit from new home purchases and consumption as the U.S. sees higher wage growth and increased employment. For instance, ITB includes specialty retail 8.7% and building product companies 13.1%. XHB includes a heftier building products 28.5%, home furnishing retail 15.3%, home furnishing 9.5%, home improvement retail 6.1% and household appliances 5.9%. [The Stars Align for Homebuilder ETFs]
SPDR S&P Homebuilders ETF
For more information on the housing market, visit our homebuilders category.