Housing ETFs Inch Lower as Market Stagnates

Housing ETFs Inch Lower as Market Stagnates

Home sales fall again as rising interest rates crimp demand.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

The U.S. housing market continues to struggle, pushing down values of housing exchange-traded funds, as rising interest rates damp demand of a key part of the economy.  

Existing home sales have dropped for nine months in a row, sinking 5.9% in October from September, the National Association of Realtors reported Friday. At an annualized rate of 4.43 million units, sales were down 28.4% from a year ago and at their lowest level since May 2020. Excluding the early pandemic period, sales are at their lowest level since 2011. 



Both the SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB) traded lower fractionally after the news. On a year-to-date basis, both ETFs are lower by just over 29%. 



At the same time, the inventory of unsold existing homes fell for a third-straight month to 1.22 million units, NAR said. That’s 30% below the 10-year average and a big reason home prices remain elevated amid plunging sales. 

The median price of an existing home was $379,100 in October, up 6.6% year over year. With mortgage rates at around 7%, many would-be sellers who want to trade in their current home for another one have been reluctant, as they’d most likely be swapping a low-rate mortgage for a high-rate mortgage.  

Those high rates have a major impact on the buyer side as well, as 7% mortgage rates, combined with near-record home prices, put a home outside the budgets of many hopeful purchasers.  

The result is a market that is ice cold, with few buyers or sellers. 

For its part, the NAR believes that the standstill might come to an end if mortgage rates fall, as they have in recent weeks. The average rate on a 30-year fixed rate mortgage is currently 6.87%, according to Bankrate.com, down from 7.35% a few weeks ago. 



"Mortgage rates have come down since peaking in mid-November, so home sales may be close to reaching the bottom in the current housing cycle," predicted NAR Chief Economist Lawrence Yun. 

That would bode well for the homebuilders and other housing-related stocks that make up XHB and ITB. While a record number of new homes are under construction in the U.S., few buyers are ready to pull the trigger, based on how the market is today.  

New home sales data will be released Wednesday, Nov. 23, and the expectation is that sales will have slipped close to three-year lows in October.  

Signs of life in the housing market will bode well for housing-related ETFs. They may not be forthcoming in the near term. Looking out further, developments with regard to inflation, and by extension mortgage rates, will play a role in determining whether housing comes back. 


E-mail Sumit at [email protected] or follow him on Twitter @sumitroy2    

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.