Keep an Eye on Homebuilders as Real Estate Heats Up for the Summer

Lower bond yields have helped keep interest rates low thanks to the Federal Reserve telling the capital markets that rates will remain near zero for the next couple of years or so–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.

Can the housing market propel itself in a post-COVID environment?

“At the moment though, investors seem to have faith that the housing market will retain the resilience it built up over the previous few years, as evidenced by the strength seen among homebuilder and supplier stocks represented in the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL), which tracks the Dow Jones U.S. Select Home Construction Index (DJSHMBT),” a Direxion Xchange post noted. “The ETF has managed to climb about 100% since the start of April while taking in roughly $75 million of inflows. The same can’t be said for confidence in the real estate market, which has seen much more volatility since the onset of the pandemic. The array of REITs represented in the MSCI US IMI Real Estate 25/50 Index (M2CXVGD) underperformed the broader market dramatically in March and April.”

Once again, the central bank has been keen to keep interest rates at zero through 2022. However, the rising costs of supplies could keep home prices rising, but that could be tempered if the current labor market can recover from the pandemic.

“Again, the effects of the pandemic are going to stick with the U.S. and global economy for years to come. The long- and even medium-term fallout for the real estate market may look entirely different from what investors are seeing now” the post added. “Going forward, traders should keep a close eye on the ebb and flow of property values in both residential and commercial real estate to get a sense of how demand is influencing owner pricing across the different segments of the industry.”

“Regardless of where prices go, renters and buyers alike will still need a roof and four walls to call home (or work),” the post said. “However, the type of structure they can afford is less cut-and-dry.”

For more market trends, visit ETF Trends.