Is the Rally in Homebuilding ETFs Over?
Zacks Investment Research | Jun 29, 2021 08:00AM ET
The U.S. housing market was hit hard initially amid the coronavirus-led lockdown in 2020. In any case, the space was struggling with land and labor shortage as well as higher prices. The COVID-19 outbreak made matters worse. However, things looked up greatly later on as mortgage financing bounced back amid record-low rates helped by the Fed’s ultra-easy monetary policy. Home sales jumped materially last year.
Homebuilding fund iShares U.S. Home Construction ETF as quoted on CNBC .
The National Association of Home Builders/Wells Fargo Housing Market Index dropped 2 points to 81, down from a recent record peak of 90 last November. Anything above 50 is still considered positive.Of the sentiment index’s three components, current sales conditions declined 2 points to 86. Sales expectations in the next six months fell 2 points to 79, and buyer traffic also went southward by 2 points to 71.
Concerns in the Sector
“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” said NAHB Chairman Chuck Fowke, as quoted on CNBC . Lumber prices have more than tripled over the past year, thanks mainly to strong demand from the housing sector.
Post-pandemic “Suburban Revival,” record-low mortgage rates and a frenzy of home renovations led to the uptick in the lumber prices. Although sawmills have boosted production significantly to cater to the higher demand, it still remains about 16% below the 2006 peak (read: ETFs to Benefit from Soaring Lumber Prices ).
While lumber prices are lower by about 10% from their recent peak, they are still about 300% higher than the 15-year average. Not only lumber, other raw material costs are also flaring up due to rising inflation and supply-chain issues owing to lockdowns in many parts of the world. As a result, the median price of a new home in April was up 20% year over year.
Plus, talks of rising rates are doing rounds. Most recently, there were talks a few days back that the Fed will enact at least two rate hikes by the end of 2023. Mortgage rates
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