The housing market and sector-related exchange traded funds are roaring back to life in recent weeks as the industry becomes an unexpected source of strength in the economic recovery.
For example, the Hoya Capital Housing ETF (HOMZ) jumped 14.4% over the past month, compared to the S&P 500’s 4.4% gain over the same period. HOMZ has also surged almost 50% since the late March lows, compared the 30% rebound for the S&P 500 and the 29% increase in REITs.
HOMZ tracks the Hoya Capital Housing 100 Index, a rules-based index composed of the 100 companies that collectively represent the performance of the US Housing Industry. According to Hoya Capital, the ETF is designed to track total spending on housing and housing-related services. The underlying index is composed of four US Housing Industry Business Segments, each weighted based on their relative contribution to US Gross Domestic Product.
Alex Pettee, President, Director of Research & ETFs, Hoya Capital Real Estate, said in an email that the recent housing data shows a stunning rebound in the sector. For example, Redfin last week revealed a rebound in housing market activity over the last month as homebuying demand is now 16.5% above pre-coronavirus levels while home values have seen accelerating growth.
The Commerce Department said on Tuesday new home sales increased an unexpected 0.6% to a seasonally adjusted annual rate of 623,000 units last month, Reuters reports.
Pettee argued that the dramatic rebound in the housing market is supported by a favorable millennial-led demographics, historically low housing supply, low interest rates and a potential post-pandemic “suburban revival” as more move away from the dense city to the suburbs, especially with the shift to more stay-at-home work and away from office life as we knew it.
The Mortgage Bankers Association also stated last week that home purchase mortgage applications rose for the 5th straight week and are now lower by just 1.5% from last year compared to the 35% decline in early April.
Zillow noted a “full rebound” in housing market activity on their platform from the lows seen in mid-April.
Government support in the form of the CARES Act, along with other fiscal and monetary stimulus measures, has shown a positive impact on the housing markets after resolving issues affecting mortgage lenders and servicers.
Meanwhile, residential real estate investment trusts revealed 95% of rents were collected in April and early-May amid the depths of the pandemic-related shutdowns, according to Hoya Capital Real Estate data. The recent stimulus measures allowed households to prioritize bills and rent-related payments.
However, Pettee pointed out that other “non-essential” commercial real estate sectors weren’t so lucky as rents among retail REITs averaged less than 50% while other REIT sectors including office, skilled-nursing, and hotels remain deeply troubled as dividend cuts mount.
“After assuming the ‘villain’ role as an instigator to the prior recession, early data indicates that the housing industry is poised to be a source of stability and resilience during the post-coronavirus recovery,” Pettee said.
“The compelling long-term growth themes of millennial-led demographics and the lingering housing shortage will be powerful tailwinds throughout the 2020s, but we contend that diversification across the housing sector – both the rental and the owner-side – is especially critical given the increased uncertainty,” he added.
For more information on the housing market, visit our real estate category.