Scalper1 News
The recent home resale data from National Association of Realtors (“NAR”) indicated that the U.S. homebuilding sector still faces weaknesses. The data showed a 3.4% decline in existing home sales in the U.S. to an annual rate of 5.36 million units in October from 5.55 million units in September. The decline is blamed on the shortage of properties that pushed up prices and discouraged buyers of existing homes. Per NAR, the number of unsold homes for October ebbed 2.3% over the previous month to 2.14 million units. Unsold homes inventory was down 4.5% from the prior year. The tight inventory caused median home price to increase 5.8% from the year-ago level to $219,600, marking the 44th straight month of a year-over-year rise (read: Homebuilder Stocks and ETFs Gain on Solid Data ). Last week, U.S. Commerce Department also revealed disappointing housing starts data for October. Groundbreaking dipped 11% to a seasonally adjusted annual pace of 1.06 million units during the month, the lowest level in the past 7 months. The decline was attributed to slowdown in the construction of multi-family homes. Groundbreaking data for the largest housing market segment indicated a 2.4% fall in single-family home projects for October. Much of the decline has been contributed by a 6.9% downfall in groundbreaking activity in the South, the most active region for the homebuilding sector. Meanwhile, housing starts for the multi-family segment slumped 25.1% to the annual pace of 338,000 units. Notably, new single-family home sales in the U.S. tumbled 11.5% to a seasonally adjusted annual rate of 468,000 units in September from August. This has led to 5.8 months’ supply of new homes in September, the highest since July last year. The U.S. homebuilding sector already faces a major threat from the strong possibility of an interest rate hike by Fed in December. A higher interest rate environment heavily weighs on the affordability of homes. On the other hand, it raises the mortgage rates that could fend off existing homeowners from upgrading to luxury and expensive homes (read: Is it the Right Time for Homebuilder ETFs? ). However, some have predicted that the decline in housing activities during October could be short-lived, particularly when the labor market is improving and the broader market is recovering. Further, industry experts argue that Fed’s lift-off could send a positive signal about the economy and boost consumer confidence. ETFs in Focus The depressing homebuilding reports for October turns our attention to the ETFs tracking the performance of the sector. Although the two major homebuilding ETFs (discussed below) delivered good performance both in the one-month and year-to-date time frames, investors should remain cautious about them given the adverse developments and the threat of an impending rate hike by the Fed (read: Two Homebuilder ETFs & Stocks Set to Soar ). iShares U.S. Home Construction ETF (NYSEARCA: ITB ) This most popular homebuilding fund provides a pure play on the home construction sector by tracking the Dow Jones US Select Home Builders Index. It holds a basket of 41 stocks, with double-digit allocation going to both D.R. Horton (NYSE: DHI ) and Lennar Corp. (NYSE: LEN ). The product has amassed more than $2 billion in its asset base and trades in heavy volume of more than 3.7 million shares per day, on average. The ETF charges 43 bps in annual fees, and has added about 2.9% in the past one month and 10.4% in the year-to-date period (as of November 24, 2015). It has a Zacks ETF Rank #2 (Buy) with a High risk outlook. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) XHB follows the S&P Homebuilders Select Industry Index, representing the homebuilding sub-industry portion of the S&P Total Markets Index. The fund holds 36 securities in its basket, with none accounting for more than 3.87% of the assets. It has garnered about $1.9 billion in its asset base and exchanges a heavy volume of roughly 3.4 million shares per day, on average. XHB charges 35 bps in annual fees and returned 0.6% in the last one-month and 6.9% so far this year. It has a Zacks ETF Rank #2 with a High risk outlook. Original Post Scalper1 News
Scalper1 News