A spate of recently bullish data is boosting homebuilders equities an exchange traded funds, such as the SPDR S&P Homebuilders ETF (NYSEArca: XHB) and the iShares U.S. Home Construction ETF (NYSEArca: ITB) even as a possible interest rate hike from the Federal Reserve looms next month.
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.
Contributing the rise in home prices, low housing inventories have limited the overall market. The inventories of new homes tightened in April. Given the current sales pace, it could take 4.7 months to exhaust the supply of newly built homes, compared to a projected 5.5 months for the prior month.
Further fueling the rally in homebuilders, the Toll Brothers (NYSE: TOL) revealed quarterly revenue surged 31% on luxury home sales, beating analysts’ estimates, Reuters reports.
“Given that the new home sales acted as a powerhouse in driving the U.S. housing market, traders are also recommending companies that focus on that section of the market. While Stacey Gilbert, head of derivative strategy at Susquehanna Financial, is surprised at the lack of options activity among housing stocks, she believes there are opportunities in new-homes-focused companies,” reports CNBC.