With High Demand and Low Supply, Homebuilder ETFs Strengthen

Homebuilder stocks and sector-related exchange traded funds gained Friday as U.S. existing-home sales hit their highest level in 14 years, reflecting the ongoing strength in the housing market.

On Monday, the iShares U.S. Home Construction ETF (NYSEArca: ITB) increased 0.9%, SPDR S&P Homebuilders ETF (NYSEArca: XHB) advanced 0.6%, Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) was flat, and Hoya Capital Housing ETF (HOMZ) gained 0.3%.

ITB 1 Year Performance

Sales of previously owned homes jumped in 2020 to their highest level since 2006 after the near-zero interest rate environment and shift toward remote home working during the coronavirus pandemic helped fuel urban home purchases, the Wall Street Journal reports.

Existing-home sales increased 0.7% in December from the previous month to a seasonally adjusted annual rate of 6.76 million, according to the National Association of Realtors. The December sales also showed a 22% surge year-over-year.

The NAR also pointed out that existing-home sales totaled 5.64 million in 2020, up 5.6% from 2019 and at their highest level since the 2006 pace of 6.48 million.

“Homeowners are smiling, because they are seeing price increases,” Lawrence Yun, NAR’s chief economist, told the WSJ. “It’s just lack of inventory that is holding back even greater home sales.”

The housing boom may also be more sustainable this time around. Economists argue that today’s housing market is less risky than the last boom in 2006. Mortgage lending standards are more strict, and there is a lower supply of homes on the market compared to demand. Homeowners can also take advantage of current policies under coronavirus pandemic policies that allow them to skip monthly payments and make them up later.

Meanwhile, U.S. home construction starts also increased in December to their best pace since late 2006 as more homebuilders try to meet the jump in demand. Residential starts climbed by 5.8% to a 1.67 million annualized rate, Bloomberg reported.

“Housing remains a bright spot in an otherwise weak economy,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note. “Lean inventories will likely continue to provide support to building activity over coming months, mostly in the single-family sector.”

For more information on the housing market, visit our real estate category.