ETF Trends
ETF Trends

The SPDR S&P Homebuilders ETF (NYSEArca: XHB), one of the largest exchange traded funds offering exposure to homebuilders and related retail stocks, is up 4.6% over the past month. A spate of economic data due out this week and looming favorable seasonality could be catalysts to drive XHB to more gains.

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.

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.

“Pending home sales in February posted a surprisingly strong increase — up 3.5% from January and 5.1% from a year ago, according to the National Association of Realtor’s Monday report. Economists were expecting an increase of 1.8%. In January, pending home sales fell 3%, seasonally adjusted,” reports Amey Stone for Barron’s.

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Meanwhile, homebuilders are still on the road to full recovery. While housing starts jumped to about 1.1 million homes last year, fundamentals like population growth and so-called scrappage suggest a normal rate of 1.5 million new homes, according to the First Trust economists.

Looking ahead, with the Federal Reserve starting to normalize interest rates, albeit at a gradual pace, more Americans may take the signal as a sign to look for cheap financing while they still can. The Fed passed on raising rates earlier this month.

“Two factors—low inventories and tight credit—will limit the gains we will see in 2016. However, given the level of pent-up demand evident in web activity and stated buyer intentions for 2016, we should see this spring materialize as the busiest season of sales since 2006,” according to a note from Realtor.com economist Jonathan Smoke posted by Barron’s.

SPDR S&P Homebuilders ETF

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.