Is There Hope for Homebuilders After U.S. Home Prices Gained in March?

There are signs of life for the housing sector after the latest data from the S&P CoreLogic Case-Shiller National Home Price Index hinted at a potential recovery. This could help exchange-traded fund (ETF) investors looking at opportunities in homebuilders.

“The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 4.4% in the year that ended in March, up from a 4.2% annual rate the prior month. March marked the highest annual growth rate since December 2018,” a Wall Street Journal report noted. “Sales of previously owned homes, which make up the bulk of the housing market, fell 8.5% in March from the prior month as the pandemic kept buyers and sellers on the sidelines, according to the National Association of Realtors.”

“Housing prices continue to be remarkably stable,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, in a statement. “As much of the U.S. economy remained shuttered in April, next month’s data may show a more noticeable impact” from the pandemic.

Lower bond yields have helped keep interest rates low–a good sign for homebuilders as prospective homebuyers pay less for financing. 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.

Lower mortgage rates could continue to 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.

This year, the central bank has been keen to keep interest rates unchanged. In addition, the central bank alluded to possible rate cuts for the rest of 2019. 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.

Hold the Leverage

For investors who want homebuilder exposure, but without the leverage can take a look at the SPDR S&P Homebuilders ETF (NYSEArca: XHB). XHB seeks to provide investment results that correspond generally to the total return performance of an index derived from the homebuilding segment of a U.S. total market composite index. In order to track the performance of the S&P Homebuilders Select Industry Index, the fund employs a sampling strategy.

After hitting a low near the end of March, XHB has jumped 70% since:

XHB Chart

XHB data by YCharts

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