This Homebuilders ETF is up Over 100% Despite Rising Rates

Rising interest rates should be putting a damper on homebuilders, but the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NAIL) being up over 100% tells a different story.

Amid the U.S. Federal Reserve’s monetary policy tightening to stave off inflation, mortgage interest rates have been going through the roof. In addition, recent bank collapses have been shaking consumer confidence in the financial system, which didn’t help the case for homebuilders.

“As interest rates and inflation climbed, the homebuilders sector was getting squeezed from both sides. Supply costs were increasing while high-interest mortgages began scaring buyers away from the market,” said a Direxion Xchange blog post. “Then, three of the largest bank failures in U.S. history all happened in the span of about two months this spring, spurring tighter lending restrictions that put even more strain on the mortgage market.”

However, the homebuilding sector proved its mettle by essentially shrugging off these headwinds. As such, bullish traders looking for opportunities can use NAIL to capitalize on the sector’s forward momentum.

“While all of that sounds like the makings of a bear market for homebuilders, the industry has stunned traders with double-digit growth while the rest of the market faltered,” Direxion added. “Now, bull traders are looking ahead for the potential of more bullish momentum to trade in what appears to be a gravity-defying homebuilder sector.”NAIL Chart

No Summer Cooldown for Housing

The recent rate pause by the Fed could pave the way for decelerated rate hikes to come. This bodes well for the housing sector, especially during the summer when the real estate market typically picks up.

“With the latest pause in rate hikes from the Federal Reserve, mortgage rates could finally level off,” the Xchange post said. “That could encourage more buyers to return to the housing market, driving up demand amid already tight supply.”

“Conditions like those could push prices up this summer, a season that already tends to see peak prices for real estate,” the post added. “Current forecasts see the number of home sales potentially climbing by about 5% over the summer. The growth may be modest, but given the better-than-expected earnings achieved during a period of declining demand, it could be enough for homebuilders to keep up some bullish momentum.”

NAIL seeks daily investment results of 300% of the daily performance of the Dow Jones U.S. Select Home Construction 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.

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