Homebuilder ETFs Strengthen as Existing-Home Sales Surge

Homebuilder sector-related exchange traded funds were among the standout areas of the market on Friday after U.S. existing-home sales surged in July to its highest rate since 2006.

On Monday, the iShares U.S. Home Construction ETF (NYSEArca: ITB) increased 1.5%, SPDR S&P Homebuilders ETF (NYSEArca: XHB) advanced 1.1%, Invesco Dynamic Building & Construction ETF (NYSEArca: PKB) rose 0.8% and Hoya Capital Housing ETF (HOMZ) gained 0.4%.

According to the National Association of Realtors, sales of previously owned homes jumped 24% in July from June, compared to expectations of a 14.2% monthly gain, to a seasonally adjusted annual rate of 5.86 million, the highest rate since December 2006, the Wall Street Journal reports. The July sales was also an 8.7% increase year-over-year.

“The housing market is actually past the recovery phase and is now in a booming stage,” Lawrence Yun, NAR’s chief economist, told the WSJ.

Market watchers argue that summer has replaced spring this year as the strongest buying season after new home buyers were forced to stay at home in March and April due to the coronavirus pandemic shutdown measures but were able to return to the market as lockdowns eased.

The strong housing market is also seen as a positive sign for the economy since home purchases typically lead to increased spending on furniture, appliances, and renovations. Meanwhile, home builders expanded activity in response to the rising demand.

Homebuilder ETFs also include a hefty tilt toward other home-related businesses outside of homebuilders. For example, ITB shows a 14.2% weight in building products, 9.8% home improvement retail, and 2.2% home furnishing.

“People that were in condominiums are looking for townhomes, and people in townhomes are looking for single families,” Bob Chew, a group leader at Berkshire Hathaway HomeServices PenFed Realty, told the WSJ. “People are at home, and the more time they spend in the home, they realize, ‘I want some different features in my home.’”

Additionally, home-improvement stocks have rallied on this increased demand from new and old homeowners seeking to spruce up their living spaces. As the pandemic keeps many Americans in their houses and apartments, forcing many to use their living spaces as home offices, gyms and art studios, more are upgrading their living areas, according to the WSJ.

“I’ve been in this space for 17 years, and this environment is not one I’ve seen before,” Seth Basham, specialty retail analyst at Wedbush Securities, told the WSJ. “I think we’ll see this trend persist into 2021, the longer Covid persists as a problem. The stock will just continue to skyrocket.”

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