The latest data on new-home sales in the U.S. has sent exchange-traded funds (ETFs) focused on home builders on an upward trajectory. According to a report released on Wednesday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, new-home sales in July surpassed expectations, prompting a boost in investor confidence.
The SPDR S&P Homebuilders ETF (XHB) recorded a 2% increase on Wednesday afternoon, while the iShares U.S. Home Construction ETF (ITB) climbed 1.2%, as per FactSet data.
In July, new-home sales experienced a 4.4% rise, reaching an annual rate of 714,000. This notable surge not only defied predictions on Wall Street but also marked the highest level since February 2022, according to economist Neil Dutta from Renaissance Macro Research.
Dutta emphasized the significance of new-home sales as a leading indicator of building activity, as they represent signed contracts. He pointed out that sales have risen by an impressive 34.1% compared to the previous year.
Although single-family housing starts have only increased by 9.5% year-on-year, Dutta observed that there is still ongoing construction activity. He cautioned, however, that it is important to monitor whether higher interest rates may result in an uptick in cancellations.
All in all, the consistently strong performance of new-home sales has injected optimism into the market and reaffirmed investors’ confidence in the home building sector.
Homebuilding ETFs See Significant Growth
According to FactSet data, both the SPDR S&P Homebuilders ETF and iShares U.S. Home Construction ETF have experienced remarkable growth this year. The SPDR fund has surged by almost 34%, while the iShares ETF has seen an even more impressive increase of over 39%.
Top Holdings
Data from BlackRock’s website reveals that as of August 22, the iShares U.S. Home Construction ETF’s largest holdings included D.R. Horton Inc., Lennar Corp., and NVR Inc.
Similarly, the SPDR S&P Homebuilders ETF’s biggest exposures on the same date were Carrier Global Corp., Lennox International Inc., and Owens Corning, as listed on the State Street Global Advisors website.
Strong New-Home Sales
Barclays analysts have reported a significant surge in new-home sales in July, despite higher mortgage rates throughout the month. This uptick in sales can be attributed to the dwindling supply of existing homes, which has resulted in more buyers turning to the new home market.
Furthermore, the median price for a new home increased by 4.8% in July compared to the previous month, amounting to $436,700. However, this price is still $41,500 lower than it was a year ago, according to the Barclays report.
Favorable Buying Conditions
“Dutta emphasizes that the new market is the best option for prospective buyers,” given builders’ ability to negotiate lower rates on behalf of borrowers. So, if you are in the market to buy a home, the new home market is your most advantageous choice.
As an aspiring homeowner or investor, these strong trends and data suggest that homebuilding ETFs are an excellent opportunity for growth and potential returns.