The momentum behind the home construction sector and homebuilder-related exchange traded funds could still have legs as investors continue to target the housing market.
According to the Federal Bank of New York’s latest survey, people view purchasing a primary residence as a better and less risky investment than the stock market, Reuters reports.
The survey results also revealed that both renters and homeowners anticipate prices will rise faster this year than during the coronavirus pandemic-driven year that just ended. Respondents showed a median one-year price increase for both home purchases and rents was 5%, the largest gain since at least 2014, according to New York Fed data.
“In general, households view housing as a good investment in comparison to the stock market,” according to a team of New York Fed researchers who analyzed the survey results.
Its not just the average American that is betting on the U.S. housing market. Money managers, homebuilders and real estate companies are all targeting large swathes of homes to rent out for a steady stream of income. For example, D.R. Horton has built homes and rented them out, generating roughly twice what it typically makes selling houses to the middle class, the Wall Street Journal reports.
“We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin,” D.R. Horton’s finance chief, Bill Wheat, said at a recent investor conference.
Private equity firms with billions of dollars and yield-chasing investors are buying up single-family houses to rent out or flip for a higher price.
“You now have permanent capital competing with a young couple trying to buy a house,” John Burns, head of Johns Burns real estate consulting firm, told the WSJ, adding that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in. “That’s going to make U.S. housing permanently more expensive.”
Meanwhile, this growing group of investors is competing for houses with Americans enjoying some of the cheapest mortgage financing ever, driving up prices in the housing market.
“Limited housing supply, low rates, a global reach for yield, and what we’re calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble,” Burns added.
Investors who are interested in the growing housing market can look to targeted sector ETFs to capture the expansion, including the iShares U.S. Home Construction ETF (NYSEArca: ITB), SPDR S&P Homebuilders ETF (NYSEArca: XHB), Invesco Dynamic Building & Construction ETF (NYSEArca: PKB), and Hoya Capital Housing ETF (HOMZ).
For more information on the housing market, visit our real estate category.