Housing Can Say More About a Recession Than We Think

When it comes to recession talk, it seems that U.S.-China trade scuffles and inverted yield curves have been speaking the loudest as of late. However, investors shouldn’t forget that the housing sector can say more about a forthcoming recession than we think.

According to Alex Pettee, President and Director of Research & ETFs for Hoya Capital Real Estate, the housing sector is saying a recession is anything, but close.

“Perhaps the strongest signal that the US economy is far from recession, the US Housing Index climbed to new all-time record highs this week,” Pettee said in an email. “The Hoya Capital Housing 100 Index includes data back to 2002 and is composed of the 100 US companies that collectively represent the performance of the US housing industry. The index is tracked by the Hoya Capital Housing ETF, NYSE: HOMZ, which launched in March 2019.”

“The Housing 100 Index has historically been a robust leading indicator of US economic activity,” he added. “Historically, the Housing 100 Index peaked in 2006, exactly a year before the 2007 peak in the S&P 500 and subsequent financial crisis. The index then bottomed in early-2008, again almost exactly a year before the bottom in the S&P 500. Since launch in March 2019, HOMZ has jumped more than 10% since launching in March, outperforming the S&P 500 by roughly 5%.”

Last year, a confluence of rising interest rates and low affordability have made the housing market a challenging space for investors, but that may be changing, which could put exchange-traded funds (ETFs) like Hoya Capital Housing ETF (HOMZ) at the forefront of prime plays for ETF investors.

Hoya Capital Real Estate, a research-focused investment advisor specializing in real estate securities, launched HOMZ earlier this year, making it the first ETF to offer diversified exposure across the entire US housing sector. It’s a refreshing take on real estate investing, particularly after the financial crisis.

Trade wars contributed to rising costs for homebuilders, which has tamped down real estate even further. For existing homeowners, this means putting construction projects on hold, preventing them from adding more value to their homes–typically the largest monthly expense for most households.

HOMZ, however, gives current and prospective homeowners another avenue towards real estate investing.

“To the extent that rising housing costs are a core liability for investors, as it is for millions of Americans, we think that HOMZ can be the core asset that addresses this exposure,” Pettee told ETF Trends.

“We think that HOMZ gives investors, not only millennials but anyone feeling the effects of rising housing costs, an opportunity to get their foot in the door by investing in the companies we expect to benefit from rising rents and home values, including many of the companies actually collecting our rent or mortgage checks every month,” added Pettee. “Consistent with this idea of ‘taking back control’ of your housing situation, HOMZ is on a monthly dividend distribution schedule, a rather unique feature for ETFs in the real estate or homebuilding categories.”

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