As Homebuilders Soar, This ETF Hits the 'NAIL' on the Head

Despite interest rates inching higher, robust demand for housing is helping to instill confidence in homebuilders, which is subsequently fueling the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NAIL).

“The National Association of Home Builders’ monthly confidence index increased by a point to a reading of 83 in April, the trade group said,” a MarketWatch report said. “Index readings over 50 are a sign of improving confidence. The index fell below 50 in April and May of last year amid the onset of the COVID-19 pandemic, but quickly rebounded until setting a record high in November.”

“While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be unwavering for now as buyer traffic reached its highest level since November,” Robert Dietz, chief economist for the National Association of Home Builders (NAHB), said in the report.

“NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020,” Dietz added.

NAIL seeks daily investment results of 300% of the daily performance of the Dow Jones U.S. Select Home Construction Index. The fund invests at least 80% of its net assets in financial instruments, such as swap agreements, securities of the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The index measures U.S. companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers, and suppliers of building materials, furnishings, and fixtures. The fund is up 100% in 2021 alone.

NAIL Chart

Millennials: The New Homebuyers

Millennials are starting to power the real estate market, which should help sustain demand in the future. The only foreseeable speed bump for home builders is rising costs for materials.

“Home builders are in an enviable position. Millions of millennials are entering their prime home-buying years — they’re getting married and having kids — as mortgage rates remain near all-time lows,” the MarketWatch report added. “That’s a recipe for strong demand. Yet a decade of under-building and hesitance on the part of would-be home sellers mean there are very few existing homes listed for sale. As a result, buyers are being pushed into the market for newly-constructed homes.”

“The biggest problem builders are facing right now is sourcing the materials needed to build homes,” the report added. “Lumber remains extremely expensive compared to a year ago. The shortage of semiconductors has caused delays in the deliveries of new appliance. Even steel is harder to come by and more costly than it was last year.”

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