The iShares U.S. Home Construction ETF (NYSEArca: ITB), the largest ETF dedicated to homebuilder equities, is coming off a brutal March when it lost more than 30%, but some market observers believe the fund and its holdings are poised to rebound.
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.
“With the ITB still nearly 43% off its 52-week high but beginning to bounce off a key support level, it’s showing promising signs that hint at a near-term recovery, Craig Johnson, senior technical research analyst at Piper Sandler, said in an interview with CNBC.
ITB Tracking Investment Results
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.
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).
“Given the low-interest-rate environment, undersupply in the housing market and an impending influx of millennial buyers, homebuilders could recover sooner than expected, particularly given their individual strength on the charts, Johnson said,” according to CNBC.
ITB’s primary rivals are the SPDR S&P Homebuilders ETF (NYSEArca: XHB) and the Invesco Dynamic Building & Construction ETF (NYSEArca: PKB).
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, and in order to track the performance of the S&P Homebuilders Select Industry Index, the fund employs a sampling strategy.
“One key point for investors to remember is that unlike the 2007-2009 financial crisis, housing is not directly related to the issue at hand, which could mean stability for homebuilders down the line,” reports CNBC.
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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.