The housing market, which has been booming since the onset of the pandemic, seems to be losing its steam. This is especially true given rising mortgage rates, higher home prices, falling home sales and rising inventories. Moody’s Analytics chief economist Mark Zandi said that the housing market is entering the “most significant contraction in activity since 2006.”

As a result, iShares U.S. Home Construction ETF ITB, SPDR S&P Homebuilders ETF XHB, Invesco Dynamic Building & Construction ETF PKB and Hoya Capital Housing ETF HOMZ are down more than 20% each so far this year (read: Homebuilder ETFs Are Cheap: Time to Buy?).

Weak Trends

Mortgage rates have touched their highest levels since 2009. As per the mortgage-finance company Freddie Mac, the average rate for the 30-year fixed mortgage climbed to 5.23% last week from 5.09% the previous week. This represents a sharp increase from the year-ago level of an average of 2.96%.

The increase in rates has made home ownership more expensive for first-time buyers, discouraging people from buying homes. Mortgage applications fell 6.5% last week, while refinancing demand also dropped 6% and was 75% lower than the same week one year ago. Applications for mortgage to purchase a home declined 7% and were 21% lower than the same week a year ago. This trend is likely to continue on the Fed’s tightening monetary policy.

Meanwhile, home prices continued to experience double-digit gains as prices are up 34% since the start of the pandemic. Prices across the country skyrocketed 20.6% year over year in March, according to the S&P CoreLogic Case-Shiller Home Price Index. The Case-Shiller’s 10-city composite rose 19.5%, while the 20-city composite saw a 21.2% year-over-year increase (read: Will ETFs Suffer as US New Home Sales Dip Again in April?).

With higher rates coupled with high home prices, nearly all the major housing markets in the United States are less affordable than they have been historically. In fact, affordability is near its worst point on record.

iShares U.S. Home Construction ETF (ITB)

iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index.

With AUM of $1.5 billion, iShares U.S. Home Construction ETF holds a basket of 47 stocks with a heavy concentration on the top two firms. The product charges 41 bps in annual fees and trades in a heavy volume of around 4.6 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 with a High risk outlook.

SPDR S&P Homebuilders ETF (XHB)

SPDR S&P Homebuilders ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket.

SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space with AUM of $1.1 billion and charges 35 bps in annual fees. The product has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Building & Construction ETF (PKB)

Invesco Dynamic Building & Construction ETF follows the Dynamic Building & Construction Intellidex Index, holding 31 well-diversified stocks in its basket, with none accounting for more than 5.5% of assets (read: 5 Sector ETFs to Tap on Upbeat Q2 Earnings Projections).

Invesco Dynamic Building & Construction ETF has amassed assets worth $137.7 million and sees a lower volume of roughly 29,000 shares per day on average. Expense ratio comes in at 0.60%. Invesco Dynamic Building & Construction ETF has a Zacks ETF Rank #4 (Sell).

Hoya Capital Housing ETF (HOMZ)

Hoya Capital Housing ETF invests in 100 domestic companies involved across the U.S. housing industry, including rental operators, homebuilders, home improvement companies, and real estate services and technology firms by tracking the Hoya Capital Housing 100 Index.

Hoya Capital Housing ETF has accumulated $46.2 million in its asset base and charges 30 bps in annual fees. The product trades in an average daily volume of 10,000 shares.

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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
 
Hoya Capital Housing ETF (HOMZ): ETF Research Reports
 
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