Homebuilder ETFs Fall As Home Equity Notches Fresh Highs | ETF Trends

Despite recent concerns that the housing market could be slowing amid rising interest rates, collective home equity has reached fresh highs.

Available funds for money mortgage holders to take from their homes while still keeping a 20% equity cushion climbed by a historic $1.2 trillion in Q1 of 2022, according to a new analysis from Black Knight, a mortgage software and analytics firm. That amount marks the most significant quarterly gain since the company began following the statistic in 2005.

While many homeowners are deep in the money, those looking for homes are facing continual headwinds. With mortgage rates spiking sharply over the last several months, and the Federal Reserve planning additional rate hikes, the dream of homeownership is becoming a fantasy for many Americans.

“It really is a bifurcated landscape  one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, president of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.”

After a torrid run higher, in what some experts see as another housing bubble, there is some indication that the surge in home prices could be slowing. Black Knight measured home prices in April, showing they were 19.9% higher year over year, a decline from the 20.4% gain seen in March. The dip in growth could be a harbinger of more to come, given interest rates continue to rise, as rising interest rates typically stymie home prices.

“April’s decline is more likely a sign of deceleration caused by the modest rate increases in late 2021 and early 2022 when rates first began ticking upwards,” Graboske said. “The March and April 2022 rate spikes will take time to show up in repeat sales indexes.”

Still, the available housing supply remains scant, with active listings about two-thirds below pre-pandemic levels, and roughly 820,000 fewer listings than a regular spring period. Homeowners may opt to simply spruce up their homes rather than sell them.

“Record-breaking home price appreciation, solid home sales, and high incomes are all contributing to stronger remodeling activity in our nation’s major metros, especially in the South and West,” said Sophia Wedeen, a researcher in the Remodeling Futures Program at the Center.

In addition, supply chain issues have plagued homebuilders with ETFs like iShares U.S. Home Construction ETF (NYSEArca: ITB) falling 28.7%, SPDR S&P Homebuilders ETF (NYSEArca: XHB) declining 26.3%, and Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) shedding 21.7% this year.

Still, for those looking to invest in the real estate market using ETFs, funds like the FlexShares Global Quality Real Estate Index Fund (GQRE) or the Virtus Duff & Phelps Global Real Estate Securities Fund (VGISX), which is a five-star fund, as rated by Morningstar, and offers exposure to a diverse array of global real estate markets.

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