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.
The survey’s overall wage and salary index increased from October to its highest in over a decade. Almost half of respondents said wages and salaries at their companies increased in the fourth quarter, compared to 33% in the previous survey. Looking ahead, expectations for wage growth in the first three months of this year jumped, with 58% expecting higher wages, compared to 44% in October.
Mortgage rates may also continue to remain depressed as many expect the Federal Reserve to push off on additional interest rate hikes. Former Dallas Fed advisor Danielle DiMartino Booth even argues that the Fed may have pulled the trigger on its first rate hike prematurely.
“I think the Fed has put themselves in a very tight spot because they need to have to find a way to communicate. I think beginning today, that they made a huge policy error,” DiMartino Booth told CNBC.
iShares U.S. Home Construction ETF
Max Chen contributed to this article.