As Confidence Improves, NAIL Down This Homebuilder ETF

When homebuilder confidence is rising, so is traders’ interest in homebuilders. This is certainly feeding into strength for the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NAIL).

The nationally recognized homebuilder trade organization, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), reported stronger builder sentiment in February.

“Builder sentiment rose 1 point to 84 in February, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released Wednesday,” a CNBC article said. “Anything above 50 is considered positive sentiment. The index stood at 74 in February 2020.”

NAIL looks to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index. Strength in homebuilders has been apparent as of late, as NAIL has gained 21% so far this year.

NAIL Chart

Materials Prices Climb, But Demand Remains Extraordinarily High

Homebuilders are witnessing an interesting dichotomy taking place. Demand for new homes is high, but prices are also rising.

Nonetheless, it seems that the demand is high enough that price increases are not ultimately tempering demand.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” said NAHB Chairman Chuck Fowke, a custom homebuilder from Tampa, Florida. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

Relatively low interest rates are helping to fuel demand. Inflation fears spooked major indexes with volatility last week, but it’s not stopping homebuyers.

“Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower-cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks,” said the NAHB’s chief economist, Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.”

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