The iShares U.S. Home Construction ETF (CBOE: ITB) is up a jaw-dropping 44.47% year-to-date, but even with that stellar performance, some traders believe ITB has more upside ahead of it and the catalysts are there to justify that assertion.
As a whole, mortgage holders saw their home equity increase by 4.8% annually at the end of the second quarter. This is market dependent of course, as some areas have greater home appreciation than others. This is a collective gain of nearly $428 billion, according to CoreLogic. Looking at this one an individual borrowing basis, each homeowner with a mortgage gained $4,900 in home equity in just one year.
“The ITB home construction ETF hit its highest level since January 2018 on Friday, and has soared more than 50% from its December bottom,” reports CNBC. “Craig Johnson, chief market technician at Piper Jaffray, thinks there could be even more room to run for the group.”
Last year, rising interest rates and low affordability put a thorn in the side of homebuilders and the real estate sector in general. However, the earth is shifting underneath the real estate sector and a move into a buyer’s market could boost homebuilder exchange-traded funds (ETFs).
At the most recent Federal Reserve meeting, a 25-basis point rate cut was installed, but more cuts could be ahead. This is lowering mortgage rates and enticing prospective buyers to reconsider a real estate purchase.
ITB seeks to track the investment results of the Dow Jones U.S. Select Home Construction Index composed of U.S. equities in the home construction sector. The underlying index measures the performance of the home construction sector of the U.S. equity market. The fund may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents.
“One of the trends that most are honing in on is that interest rates around the world still continue to trend lower,” said Johnson in a CNBC interview. “Despite the recent push up in the last couple days, you are seeing that trend continuing. … Lower interest rates should be a positive for the homebuilders, and that’s exactly what you’ve been seeing happening this year.”
ITB’s primary rival is the equal-weight SPDR S&P Homebuilders ETF (NYSEArca: XHB). That fund is up 35.18% this year.
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. The index represents the homebuilders segment of the S&P Total Market Index (“S&P TMI”).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.