Homebuilder exchange traded funds have slowed down and an unexpected drop in single-family home sales further dragged on the home construction market.
The SPDR S&P Homebuilders ETF (NYSEArca: XHB) was down 0.9% and iShares U.S. Home Construction ETF (NYSEArca: ITB) was 1.1% lower Wednesday, after declining 2.6% and 2.0% over the past month, respectively.
Home construction companies weakend Wednesday after the Commerce Department revealed new home sales decreased 9.4% to a seasonally adjusted annual rate of 571,000 units last month, its lowest level since the end of 2016, Reuters reports.
The percentage decline was also the largest since August 2016, startling economists whom expected a 0.3% gain.
The housing market is being pressured by a shortage of properties, which is escalating home prices.
“Existing home sales reports from the National Association of Realtors suggest the demand for houses in the U.S. is on the rise across the board,” according to a Direxion Investments note. “However, this demand has caused prices to spike above consumer’s ability to afford a home. Between 2016 and the first six months of 2017, home prices have consistently risen on a year-over-year basis; total existing home sales have not.”
Related: Don’t Rush to Ditch Homebuilders ETFs
The new housing market, though, has not capitalized on the sharp shortage due to supply constraints facing builders, such as labor, land and finance.
“Rising prices in home construction due to increased materials cost and a dearth of property to build upon have inflated construction costs,” according to Direxion.
Consequently, some would-be homeowners have put off home purchases.
“If the most recent economic numbers serve as an indication, this trend could have a sustained impact on homebuilders exiting 2017. The overall price inflation in real estate, coupled with slow wage growth and the lack of any clear sign that either will reverse could spell lean third and fourth quarters,” according to Direxion.
Potential traders who want to capitalize or hedge this shifting trend can look to the triple-leveraged homebuilders ETF, the Direxion Daily Homebuilders & Supplies 3x Bear Shares (NYSEArca: CLAW). Alternatively, a bullish turn could be captured through the Direxion Daily Homebuilders & Supplies 3x Bull Shares (NYSEArca: NAIL).
For more information on the housing market, visit our homebuilders category.