Why Housing ETFs & Stocks Could Spring Higher

The housing market is probably entering a good spell. Winter months were subdued for homebuilding as the weather was too wet in the south and severely chilly in the north. Per some surveyed wood products companies, the homebuilding backlog is rising and a surge of domestic business will be seen in May and June.

The housing market has, in fact, entered the key spring selling season, which is considered the peak time for home sellers. Normally, the season starts in March and lasts through May-June thanks to warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar starts. Buyers will be trying to dip their toes into the housing market for as long as the rates remain affordable. A solid job market is doing its bit to drive this segment.

Despite persistently low inventories and rising price issues, the latest pool of sales data came in favorable. Sales of previously owned houses in the United States — which make up the majority of the market — surged 11.8% in February, marking the highest reading in 11 months and the biggest monthly rise since December 2015. Sales of new single-family houses rose 4.9% in February, beating market expectations and logging the highest reading since March 2018.

Unlike last year, the Fed has been pretty dovish from the start of this year. The central bank has pledged to take a patient stance toward the future rate outlook amid global growth worries. Federal funds rate projections for 2019 were trimmed to 2.4% from 2.9%, while the same for 2020 and 2021 was cut to 2.6% from 3.1%. The U.S. benchmark yield is hovering around 2.48% as of Apr 2, down from this year’s high of 2.79% hit in January. This will result in lower mortgage rates and benefit housing ETFs (read: Top ETF Stories of March).

Thanks to a dovish Fed and upbeat market sentiments, SPDR S&P Homebuilders (NYSE:XHB) ETF XHB (up 19.6%)has already surpassed the S&P 500 (up 14.4%) this year. The fund is still 7.3% off from its 52-week high, which entails more room to run.

Against this backdrop, below we highlight a few stocks and ETFs that could be in focus in the coming days.

Stocks in Focus

Summit Materials Inc. (NYSE:SUM)

This is a Zacks Rank #2 (Buy) construction material company.

Fastenal Company (NASDAQ:FAST)

The Zacks Rank #2 (Buy) company, together with its subsidiaries, engages in the wholesale distribution of industrial and construction supplies in the United States, Canada and internationally.

ETFs in Focus

XHB

The fund tracks the S&P Homebuilders Select Industry Index and charges 35 bps in fees. No stock accounts for more than 4.81% of the portfolio.

iShares U.S. Home Construction ETF (WA:ITB)

The fund tracks the Dow Jones U.S. Select Home Builders Index, which includes companies that are constructors of residential homes, including manufacturers of mobile and prefabricated homes. The fund is heavy on two companies — D R Horton and Lennar (NYSE:LEN). It charges 43 bps in fees.

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