Homebuilder stocks are among the top-performing areas of this year. They had suffered last year as the Federal Reserve raised rates aggressively and the housing market plunged from its pandemic-driven highs.
Housing starts jumped 21.7% in May, by the most since 2016 and were well above consensus estimates. Earlier this week, the National Association of Home Builders (NAHB) reported that homebuilder sentiment improved to an 11-month high and moved into positive territory in June, thanks to solid demand, a lack of existing inventory, and improving supply chain efficiency.
The supply in the existing-home market remains tight as higher mortgage rates have discouraged many homeowners from selling and giving up their current low rates. About a third of all homes listed for sale are new homes now.
Lumber prices are down about 25% this year, according to Calculated Risk, boosting builders’ profits. In fact, many homebuilders reported positive surprises for the first quarter.
The average rate on the 30-year fixed mortgage fell for the third consecutive week and is close to 6.7%, down from its 20-year high of over 7% hit in the fall. While the Federal Reserve is close to the end of its tightening campaign, many prospective homebuyers are adjusting to the possibility of rates staying at elevated levels for a long time.
The iShares U.S. Home Construction ETF ITB tracks a market cap weighted index of home construction and related stocks. It is top heavy with four holdings–D.R. Horton DHI, Lennar LEN, NVR NVR and PulteGroup PHM–accounting for about 45% of the portfolio.
The SPDR S&P Homebuilders ETF XHB is an equal-weighted ETF that has significant exposure to building-products and home-furnishing companies as well in addition to homebuilders.
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