Residential Real Estate ETFs Sag Amid Market Softness
- Housing is experiencing its 'worst year in decades,' analyst Meredith Whitney said.
- New home sales tanked almost 14% in May.
- VNQ, SCHH have barely budged over past three months, while ITB tumbled.
New home sales are in the dumps as housing experiences its “worst year in decades,” according to noted analyst Meredith Whitney.
VNQ, ITB Lag the Market
Investors in residential real estate and real estate investment trust (REIT) ETFs know the pain is real, particularly over the past three months. The largest, the $34.7 billion Vanguard Real Estate ETF (VNQ), has dipped 0.6% over that time, lagging the 5.8% jump in the S&P 500 through June 25 as measured by the Vanguard S&P 500 ETF (VOO).
The story is worse with the $2.16 billion iShares U.S. Home Construction ETF (ITB), which holds shares of companies involved in the production and sale of materials used in home construction. That fund, whose top holdings include D.R. Horton Inc. (DHI), Lennar Corp. (LEN) and NVR Inc. (NVR), has dropped 4.7% over the past three months, and investors have pulled out a net $198.7 million.
Market Suppressed
Rising home prices and historically high mortgage rates have combined to suppress the market, with new residential home sales falling by almost 14% in May compared to April, according to the U.S. Census Bureau's report on June 25.
Existing home sales, a market about five times that of new homes, moved 0.8% higher in May, while dipping 0.7% year over year, the National Association of Realtors said on June 23.
And 30-year mortgage rates of just under 7% are at their highest since 2002, according to the U.S. Federal Reserve.
Real Estate ETF Performance—Source: FactSet
Things are going to get worse, according to Whitney, a well-known market analyst, who told Yahoo Finance on June 24 that sales of existing homes this year will probably come in well below estimates.
“We don't expect the housing market to improve that much if at all. We think it's going to weaken throughout the year,” she said.
Other REIT and residential real estate funds are stagnant or dropping over the past three months. The $8.1 billion Schwab U.S. REIT ETF (SCHH) lost 0.3%, and the $795.4 million iShares Residential and Multisector Real Estate ETF (REZ) slid 2.8%.
