Homebuilder ETFs Rally, Hit Records After Fed Comments

Homebuilder ETFs Rally, Hit Records After Fed Comments

The rally picked up steam last week after the Federal Reserve indicated it may cut rates next year.

Senior ETF Analyst
Reviewed by: etf.com Staff
Edited by: Mark Nacinovich

The rip-roaring rally in homebuilder exchange-traded funds reached a new level after the Federal Reserve shocked markets with a dovish pivot last week.  

The two biggest homebuilder ETFs, the SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB), gained more than 8% and 9%, respectively, between Wednesday and Friday. 

The two ETFs are now up 58% and 67%, respectively, on a year-to-date basis. Both ETFs are also trading at all-time highs. 

Lower interest rates make houses more affordable for buyers, which is an obvious plus for homebuilders. The firms have also been benefitting from a deep freeze in the market for existing homes. 

Homeowners have been reluctant to part ways with houses financed at rock-bottom interest rates. That’s left the housing inventory at depressed levels and pushed existing home sales to the lowest point in over 13 years.

In turn, new homes—like the ones sold by homebuilders—have gobbled up a record share of the housing market. Sales of such homes have accounted for upward of one-third of all housing sales this year, boosting the fortunes of homebuilders. 

With rates down from their recent highs, demand for new homes should stay elevated. Longer term, some believe that a structural shortage of housing may provide support to homebuilder stocks.

Homebuilder ETFs  

ITB and XHB are the two largest homebuilder ETFs, with assets under management of $2.4 billion and $1.6 billion, respectively. However, they have two very different weighting schemes—market cap weighting for ITB and equal weighting for XHB. 

Moreover, ITB is much more heavily weighted toward traditional homebuilders like D.R. Horton and Lennar; while XHB holds a more dispersed portfolio of homebuilders, building products companies, home-improvement retailers and household appliance manufacturers. 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.