Housing ETFs have continued their climb despite indications of a real estate slowdown as investors battle supply constraints.
U.S. single-family home prices continued to slow in September as higher mortgage rates, fueled by rapidly rising interest rates, eroding demand. The S&P CoreLogic Case Shiller national home price index, which monitors home prices in the 20 largest cities in the U.S., slumped 0.8% month over month in September. This was the third consecutive decline for the index.
And home prices rose 10.6% from last September, a slight drop from the 12.9% recorded in August.
Still, housing-focused ETFs rallied despite the latest data￼ with the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB) notching nearly 1% in gains during midday trading.
Meanwhile, the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) soared nearly 2.1%. The Kelly Residential & Apartment Real Estate ETF (RESI), the SPDR S&P Homebuilders ETF (XHB) and ITB notching nearly 1% in gains during midday trading. The Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) soared nearly 2.1%.
Experts have pointed to ongoing tight residential real estate supplies as well as heightened demand following a surge in remote work during the COVID-19 pandemic that could eventually lead to housing price floors.
“It's a number that's not going away, because we're talking multiple millions of homes that we lack the supply for the amount of tenant demand that is out there,” said David Auerbach, managing director of Armada ETF Advisors, in an interview with ETF.com, referring to homebuying demand.
Adding to related ETF performance may be “opportunistic buying of the sub-industry, which has been down significantly this year,” according to CFRA’s Director of Data & Analytics Aniket Ullal. Also playing a role could be seasonal factors that bolster the homebuilders’ subindustry during this time of year, Ullal told ETF.com.
Still, Federal Reserve officials are cautioning that financial markets may be underestimating the possibility that the central bank could be more aggressive in the coming year in order to curb inflation.
"We've got a ways to go to get restrictive," Federal Reserve Bank of St. Louis President James Bullard said in an interview with MarketWatch and Barron’s Monday, indicating that the central bank’s target fed funds rate could rise at least 1% to sit between 5% and 5.25%.
“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be more expensive and housing becomes less affordable,” said Craig Lazzara, managing director at S&P DJI in a statement on Tuesday. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”
Contact Shubham Saharan at [email protected]