The housing market returned to impressive growth in September driven by the Fed’s taper hold, and the resulting decline in interest rates. This is because if rates continue to decline or at least hold steady at the current levels, it would allow more potential buyers to enter the market.
This robust growth might not continue this month though, as the housing market could face troubles from the prolonged government shutdown. Starting this month, the U.S. government went for its first closure in 17 years following political gridlock between the White House and Republican lawmakers over government funding.
If this partial shutdown continues for much longer, it could slow down the broader economic recovery, affecting almost all the major classes and categories.
Further, the increase in government debt ceiling from the current $16.7 trillion is looming large across the economy with a deadline of October 15. Failure to raise such limit could turn to a global financial crisis by defaulting on U.S. Treasury obligations (see: 3 ETFs to Watch as the Government Shutdown Drags On).
The prolonged shutdown suggests delays in obtaining new home loans and approval for mortgage–backed finance by the Federal Housing Administration (FHA). This could impact borrowers and sellers, hurting overall home sales.
The builders that offer homes using FHA financing like D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), Beazer Homes (NYSE:BZH) and KB Home (NYSE:KBH) would also be negatively impacted. This is primarily true as less than one-tenth of the FHA employees are working during the shutdown.
In such a backdrop, the following homebuilder ETFs could see rough trading in the days ahead if the government closure drags on:
SPDR S&P Homebuilders ETF (NYSEARCA:XHB)
This is by far the most popular and liquid choice in the homebuilding space with AUM of over $2 billion and average daily volume of roughly 6.6 million. The fund follows the S&P Homebuilders Select Industry Index and charges 35 bps in fees a year. In total, the product holds 37 securities with none holding more than 3.4% of total assets.
The ETF is pretty spread out across the sectors with homebuilding taking the top position at 30%, while building products and home furnishing retail round off the next two spots. XHB gained 7.2% in the past month and over 11.4% so far this year. The fund currently has a Zacks ETF Rank of 2 or ‘Buy’ rating with ‘Medium’ risk outlook.
iShares U.S. Home Construction ETF (NYSEARCA:ITB)
This fund follows the Dow Jones US Select Home Builders Index and holds a small basket of 33 stocks. It is heavily concentrated in its top 10 firms with 63% of the total assets. Additionally, the product puts more focus on home construction, indicating that it is a ‘pure play’ on the space.
The fund is popular and liquid with AUM of just under $2 billion and average daily volume of nearly 5.8 million shares. The ETF charges 46 bps in fees and expenses.
The ETF added 8.6% in the past month and is up just 2.5% in the year-to-date time frame. ITB currently has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with ‘Medium’ risk outlook.(...)Click here to continue reading the original ETFDailyNews.com article: Homebuilder ETF Impact On Government ShutdownYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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