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Historic Home Sales Could Continue To Boost Housing ETFs

The housing market hot streak continues, according to data released Friday from the National Association of Realtors that revealed sales of previously-owned homes in the U.S. climbed 24.7% between June and July to a seasonally-adjusted annual rate of 5.86 million. In addition to achieving a record percentage increase, the sales volume was the highest the U.S. has seen since 2006. All this news could be good for housing ETFs, which have been climbing this year.

The data is a huge reversal from just a few months earlier when the coronavirus pandemic resulted in record-breaking decreases in sales as Americans were staying home to avoid contracting the virus, and afraid to go home shopping.

“The housing market is on a sugar high brought on by government stimulus and a pandemic-fueled rush to low density housing,” said Daren Blomquist, vice president of market economics at Auction.com, a real-estate website for foreclosure sales.
One caveat for new buyers however is that they may be buying at a high time.
“Prospective buyers will be better positioned for success as homeowners if they understand that this sugar high will not last and make sure their decision to buy is grounded in longer term factors that will affect their ability and willingness to commit to paying down a sizable amount of debt over the next 30 years,” Blomquist added.

While there could be some concern that the housing market could be topping, most analysts see huge demand for housing as an indication that Americans are attempting to make up for lost time now that some quarantine restrictions have been eased. Thus, what we could be witnessing seeing is a postponed spring home-buying season.

In addition, all-time lows in interest rates continue to drive buyers to purchase homes as they hope to lock in affordable payments for the big picture, although inventory continues to be limited.

“Now is a great time to buy because of incredible mortgage rates, but a terrible time to buy because of inventory,” said Ralph McLaughlin, chief economist and senior vice president of analytics at financial-technology company Haus.

“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power,” said Bill Banfield, executive vice president of capital markets at Quicken Loans. “With interest rates in the two’s available, a buyer can afford much more home than they could have just a few years ago.”

New data released on Friday also showed pockets of the economy achieving faster rates of recovery. IHS Markit’s flash PMIs revealed that the service economy reached expansionary territory in August while manufacturing activity gained more than anticipated.

For investors looking to use ETFs to play the housing market, funds like the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) and Hoya Capital Housing ETF (HOMZ) which are higher amid the news, should continue to benefit from housing investment.

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