‘Too much stagflation in the new domestic market’: Homebuilding ETFs are struggling

Housing construction ETFs are on the decline this year, weighed down by higher interest rates and higher prices in the housing market.

iShares US Home Construction ETF ITB shares,
+3.86%
and SPDR S&P Homebuilders ETF XHB,
+ 3.84%
Both are down more than 30% in 2022 through Wednesday, according to FactSet data. Hoya Capital Housing ETF HOMZ,
+ 2.06%
It fell 22% over the same period, while shares of Invesco Dynamic Building & Construction ETF PKB,
+ 3.44%
Slithered nearly 26%.

FactSet data shows that all four ETFs have traded below the 50-day moving average for most of this year.

“This is a very important resistance line” to get “any sense that momentum could turn positive,” Frank Cappelaere, desk strategist at Instinet, said in a phone interview.

On Tuesday, the SPDR S&P Home Builder ETF reached a new 52-week low, according to Cappelaere. This is the day the US government released data showing new home sales plummeted in April.

“There is a lot of stagflation in the new domestic market,” Yardeni Research wrote in a note on Tuesday. “The combination of high home prices and rapidly rising mortgage rates has hurt the affordability of buying a home.”

US new home sales in April slowed to an annual rate of 591,000, down sharply by 16.6% from 709,000 in March, according to data released Tuesday by the US Census Bureau and the US Department of Housing and Urban Development. It marked the fourth consecutive month of declines.

Meanwhile, the median new home price jumped 19.6% year-over-year to a record $450,600, Yardeni Research writes. “It is up 45.3% over the past 24 months, while the average price is up 58.3% over the same period!”

In addition to concerns about a slowing real estate market, the National Association of Realtors said Thursday that its index of US pending home sales fell 3.9% in April for the sixth straight month of decline. In the statement, Lawrence Yun, the group’s chief economist, predicted existing home sales could fall 9% in 2022, saying contract signings are at the slowest pace in nearly a decade.

“If mortgage rates stabilize around the current level of 5.3% and job gains continue, home sales may also stabilize in the coming months,” Yoon said. But “if mortgage rates go up to 6%, sales activity could drop by 15%.

Read: Pending home sales decline for the sixth month in a row due to higher prices and mortgage rates

With interest rates rising while inflation surging amid growing fears of a slowing economy, Invesco’s Dynamic Building & Construction ETF has seen outflows so far this year, according to Rinni Rina, head of specialized and substantive product strategy at Invesco.

By contrast, Rina said by phone that he saw investors favor consumer staples, a defensive sector, with demand for the Invesco Dynamic Food & Beverage ETF PBJ,
+ 0.98%.
ETF shares are down just 0.4% this year through Wednesday, compared to a 16.5% loss for the S&P 500 SPX,
+ 2.10%And
The FactSet data appears.

“Investors are looking for ways to isolate themselves,” Rina said.

Here’s a weekly look at the best and lowest performers over the past week through Wednesday, according to FactSet data.

The good …

…bad

New ETFs:

• Putnam Investments said May 23 that it plans to offer three actively managed ETFs in the coming months, one focused on business development companies, a second targeting companies at the intersection of technology and biology, and a third investing in companies in emerging markets other than China. and Hong Kong. The regulatory filing of the Putnam BDC Income ETF, Putnam BioRevolution ETF and Putnam Emerging Markets ex-China ETF must first be completed.

• PGIM Investments announced on May 24 that it has launched the PGIM Floating Rate Income ETF PFRL,
  -0.03%And
  An actively managed fund that invests primarily in floating rate loans. “We have seen an increased demand for floating exchange rate strategies as investors look to protect against price appreciation,” Stuart Parker, President and CEO of PGIM Investments, said in the announcement.

The weekly ETF reads: