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.”
Unfortunately, while the rest of the capital markets appear to be moving forward as the extended bull market continues its upward trajectory, it has left the housing sector in the rearview mirror as rates continue to rise and affordability remains low. Despite this, economic models at the NAHB are showing that home builders can weather the storm of higher interest rates.
“NAHB’s forecast model suggests single-family construction will continue to expand despite this change in conditions,” added Dietz. “The top reason for this expectation is the fact that there is such a large degree of underbuilding in single-family markets, with just over 900,000 single-family starts expected this year, compared with the 1.2 million we believe the market could absorb.”
Dietz did make a call upon lawmakers to take notice of the current economic conditions in the housing market, particularly with respect to affordability. With the capital markets relatively focused on the current bull run in the stock market and trade wars, it would be careless economic policy to ignore the housing market as it comprises 15-18% of the gross domestic product.
“For policymakers and community leaders concerned about affordability declining due to macroeconomic conditions, there’s no better time to try to reduce regulatory costs associated with home construction,” said Dietz. “Ultimately, additional supply will help reduce the cost of the American dream.”
In the meantime, traders can keep NAIL on their radar when the housing market does indeed turn around.
For more real estate trends, visit ETFTrends.com