March’s Housing Rebound Can Keep Building Up This ETF

The construction industry can continue to build off a strong March, helping along assets like the iShares U.S. Home Construction ETF (ITB).

ITB is up about 27% for the year, and if it a confluence of low rates, strong housing demand, and an improving economy can continue, the fund should continue to be a benefactor.

“U.S. housing construction rebounded strongly in March with home builders recovering from an unusually frigid February,” a North State Journal article noted. “Builders began construction on new homes and apartments at a seasonally adjusted annual rate of 1.74 million units in March, the Commerce Department reported Friday, a 19.4% increase over February when housing construction fell by 11.3%.”

The report came after February’s cruel winter weather with severe storms hitting many parts of the country. This did no favors for the construction industry, which had to subsequently postpone projects, causing February’s dismal construction numbers.

“Severe storms raked several regions of the country in February, setting construction back,” the report added. “Friday’s report showed that application for building permits, a good sign of future activity, increased by 2.7% to a seasonally adjusted annual rate of 1.77 million units.”

ITB seeks to track the investment results of the Dow Jones U.S. Select Home Construction Index, which is composed of U.S. equities in the home construction sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.

The underlying index measures the performance of the home construction sector of the U.S. equity market. The fund may invest the remainder of its assets in certain futures, options and swap contracts, cash, and cash equivalents.

ITB gives investors:

  1. U.S. companies that manufacture residential homes
  2. Targeted access to domestic home construction stocks
  3. Use to express a sector view

ITB Chart

A V-Shaped Recovery Forming?

As mentioned, the pandemic also put a crunch on the construction industry overall. Social distancing measures put the clamps on projects, but a V-shaped recovery may be forming.

“The construction industry continues its V-shaped recovery, resulting in another quarter of increased sales for product manufacturers,” said Rebecca Larkin, CPA Senior Economist. “This appears to be the case particularly in private housing, which is experiencing a flow of pent-up demand and policy support from Help to Buy and the stamp duty holiday.”

“Infrastructure and the repair and maintenance sectors are also driving activity as work on major projects accelerates and homeowners and commercial occupiers re-assess their use of space,” Larkin added. “Encouragingly, manufacturers expect continued growth over the next year. This risks being held back by bottlenecks in the global supply of raw materials, however, notably in categories where a high proportion is dependent on imports. Inevitably, rises in input prices have followed and almost all manufacturers expect this inflationary pressure to persist over the next 12 months.”

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