Less Competitive Housing Market Could Help Leveraged Homebuilder ETF

Based on the Modern Homebuyer Survey, almost half of the participants cited that the competition for home buying is decreasing, which could bode well for traders looking to leverage homebuilder ETFs like the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NYSEArca: NAIL).

The survey results showed that more than 50% of participants felt competition is thinning in areas like Colorado, California and New York. This could signal an impending shift from a seller’s market to a buyer’s market, which could force the hand of homebuilders to meet increased demand.

“While ongoing supply constraints are reinforcing the floor on home prices right now, the experts’ forecasts still imply the joists will start to crack sometime next year, and result in sub-three percent annual home-value appreciation in 2020 and beyond,” said Terry Loebs, founder of Pulsenomics.

Three of the biggest homebuilder ETFs have been feeling the pangs of the current economic landscape of rising rates, such as iShares US Home Construction ETF (BATS: ITB)–down 13.54% year-to-date, SPDR S&P Homebuilders ETF (NYSEArca: XHB)–down 9.19% YTD and Invesco Dynamic Building & Const ETF (NYSEArca: PKB)–down 10.58 YTD%.

Despite this, all is not lost according to Robert Dietz, a chief economist and senior vice president for Economics and Housing Policy at the National Association of Home Builders.

“Rising interest rates are a concern in the housing sector,” Dietz said in a blog. “Higher rates increase the cost of builder and developer debt financing, as well as raise the cost of buying a home with a mortgage. However, with respect to housing affordability, it’s important to remember that the primary reason interest rates are higher is that the economy is performing well.”