It could be good vibrations ahead for homebuilder-focused exchange-traded funds (ETFs) after the National Association of Home Builders/Wells Fargo Housing Market Index rose a point during the month of April.
The index, a measure of homebuilder confidence, gained last month as industry experts cited strong demand in the spring. Compared to a year ago, however, the index is still down five points.
If the trend mirrors last year when the index hit a high of 70 in the month of May, homebuilder ETFs could see an uptick.
ETFs to watch moving forward include the the iShares US Home Construction ETF (BATS: ITB) and SPDR S&P Homebuilders ETF (NYSEArca: XHB). Leveraged plays on homebuilder stocks include the bullish Direxion Daily Homebuilders and Supplies Bull and Bear 3X Shares (NYSEArca: NAIL), which attempts to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index.
“Builders report solid demand for new single-family homes, but they are also grappling with affordability concerns stemming from a chronic shortage of construction workers and buildable lots,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut.
Related: Brexit Delay Sparks Options Activity in U.K. ETF
Lower mortgage rates could give the housing market a much needed boost, which could translate to more strength for homebuilders. Rising rates, low affordability and rising homebuilder costs due to tariffs have been thorns in the side for the housing market.
Last month, the central bank decided to keep interest rates unchanged. In move that was widely anticipated by most market experts, the Federal Reserve on Wednesday elected to keep rates unchanged, holding its policy rate in a range between 2.25 percent and 2.5 percent. In addition, the central bank alluded to no more rate hikes for the rest of 2019 after initially forecasting two.
Once again, however, the rising costs of supplies could keep home prices rising, but that could be tempered if the current labor market remains robust.
“Ongoing job growth, favorable demographics and a low-interest rate environment will help to modestly spark sales growth in the near term,” said NAHB chief economist Robert Dietz. “However, supply-side headwinds that are putting upward pressure on housing costs will limit more robust growth in the housing market.”
Have you signed up for the ETF Trends Virtual Summit on Wednesday, April 17? It’s complimentary for financial advisors (earn up to 5 CE Credits)! Register now to learn about alternative and thematic tools to better diversify client portfolios.