Though the U.S. housing market was a little soft in Q1, sales started gaining momentum with the spring selling season. The season, which usually heats up in March, is in full swing till the back-to-school season in September.
The season normally brings about solid sales and this year was not an exception. This is because new home sales in the U.S. spiked to an almost a nine-year high in July. An improving labor market along with wage gains, a slow-but-steadily improving economy measured by other indicators and low mortgage rates point to an inevitable pickup in the housing market.
The average rate for the 30-year fixed rate mortgage was 3.44% at the end of July, down a half-percentage point from a year earlier, according to Freddie Mac. Importantly, the median sale price of a new home in July was $294,600, down slightly from $296,000 a year earlier, giving buyers reasons to buy new homes.
Inside the Soaring Numbers
New-home sales soared 12.4% in July to a seasonally adjusted rate of 654,000 annual units, as per Wall Street Journal. Economists expected sales to slow down to 580,000 homes as June sales were revised lower to 582,000 from an initially estimated 592,000, as per Wall Street Journal.
The latest figure takes new-home sales to the pre-recessionary level. Also, sales came in way higher than the second-quarter average, pointing to steady recovery in the space. However, it is still below the boom seen in July 2005.
All this happened although the inventory of new homes declined 2.9%, marking thelowest level since November 2015. The present supply of new homes is just for 4.3 months, down from 5.2 months a year ago (read: Can Surging Housing ETFs Withstand Fed Hike Worry?).
Bullish Fundamentals Ahead
As per CNBC, the coming days are likely to see the same uptrend as single-family housing projects grew to a five-month high in July and sentiment among homebuilders is upbeat in the ongoing month.
ETF Impact
Given the improving housing situation, related ETFs are expected to mop up gains. These include SPDR S&P Homebuilders ETF XHB, iShares U.S. Home Construction ETF ( (WA:ITB) ) and PowerShares Dynamic Building & Construction Fund PKB (see all Industrials ETFs here).
To reflect the optimism in the housing market, XHB gained 1.8%, ITB advanced over 2.6% and PKB rose over 1% on August 23, 2016.
Both funds have nearly half of the exposure to the U.S.Investors should also note that timber ETFs including Guggenheim MSCI Global Timber ETF CUT and iShares Global Timber & Forestry ETF (AM:WOOD) can also be good choices to play the housing market recovery. Each of the funds has nearly half the total exposure to the U.S.
This timber segment is apparently a key beneficiary, as timber and related products are required for new houses. CUT and WOOD were up about 1% and 1.1%, respectively, on August 23 (read: Timber ETFs: The Best Housing Recovery Plays?)
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SPDR-SP HOMEBLD (XHB): ETF Research Reports
ISHARS-US HO CO (ITB): ETF Research Reports
PWRSH-DYN BLDG (PKB): ETF Research Reports
GUGG-TIMBER (CUT): ETF Research Reports
ISHARS-GL TF (WOOD): ETF Research Reports
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Zacks Investment Research