The housing sector and homebuilders-related exchange traded funds could enjoy a booming period ahead as President-elect Donald Trump promised many expansionary economic policies that could stimulate growth.
“I think we’re at a turning point. The numbers that we’re reporting today are October, before the Trump election, and everything looks different now,” economist and Nobel laureate Robert Shiller told Bloomberg. “There might be a Trump boom coming.”
S&P CoreLogic Case-Shiller data released Tuesday revealed that home prices in 20 U.S. cities steadily increased in October, rising by 5.1%, while the gauge of nationwide values rose by the most since mid-2014.
“I’m not forecasting a boom. I find it very hard to forecast at this point in our history because it’s such an important change in government and we just don’t know where it’s going,” Shiller added. “I want to see Trump’s actual policies and see how successful he is in getting them through.”
Many investors believe President-elect Trump will follow through on campaign promises to reduce corporate taxes, cut back on regulations and throw billions of dollars into the U.S. economy.
However, the expansionary rhetoric has caused the Federal Reserve to tighten its monetary policy, which could push up mortgage rates.
“Home prices and the economy are both enjoying robust numbers,” David Blitzer, chairman of the S&P index committee, said in a statement. “However, mortgage interest rates rose in November and are expected to rise further as home prices continue to outpace gains in wages and personal income.”
Nevertheless, Shiller argued that the rise in mortgage rates so far this year “not a big deal yet” and may even cause further short-term gains in house prices as new buyers lock in lower rates.
“I don’t know how people react to rising mortgage rates,” Shiller added. “One thought is they want to lock it in now. And that’s why we’ve had good home sales recently. And it might continue as mortgage rates rise. This thing could feed a boom. I’m not saying it will.”
ETF investors interested in the homebuilders category have a number of options available, including the SPDR S&P Homebuilders ETF (NYSEArca: XHB), iShares U.S. Home Construction ETF (NYSEArca: ITB) and PowerShares Dynamic Building & Construction Portfolio (NYSEArca: PKB).
The ETFs include exposure to other sub-sectors along with homebuilders. For instance, XHB, which more-or-less equally weights components, includes 34.0% building products, 29.7% homebuilding and 12.7% home furnishing among its top allocations.
ITB takes a more market cap-weighted approach with a larger tilt toward homebuilding, including 64.5% homebuilders, 14.6% building products and 9.2% home improvement retail.
PKB, on the other hand, takes a larger focus on consumer discretionary and materials companies.
For more information on the housing market, visit our homebuilders category.