‘A lot of stagflation in the new home market’: Homebuilder ETFs are struggling

Hi! In this week’s ETF Wrap, we look at the sharp drop in ETFs for homebuilders this year as new home sales fell in the US amid high prices and rising interest rates. rise.

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Homebuilders’ exchange-traded funds have been sliding this year, hit hard by rising interest rates and soaring prices in the housing market.

Shares of iShares US Home Construction ETF ITB,
+0.82%
and SPDR S&P Homebuilders ETF XHB,
+0.58%
have each fallen more than 30% in 2022 through Wednesday, according to FactSet data. The Hoya Capital Housing HOMZ ETF,
-0.27%
fell 22% over the same period, while shares of Invesco Dynamic Building & Construction ETF PKB,
+1.37%
slipped almost 26%.

All four ETFs have been trading below their 50-day moving average for most of this year, according to FactSet data.

“It’s a very important resistance line” to cross for “any sense that momentum might turn positive,” Frank Cappelleri, office strategist at Instinet, said in a phone interview.

On Tuesday, the SPDR S&P Homebuilders ETF hit a new low of 52 weeks, according to Cappelleri. It’s the day the US government released data showing new home sales fell in April.

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

New home sales in the United States slowed in April to an annual rate of 591,000, a steep 16.6% drop from 709,000 in March, according to data released Tuesday by the US Census Bureau and the US Department of Housing and Urban Development. This marked a fourth consecutive month of decline.

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

YARDENI RESEARCH NOTE DATED MAY 24, 2022


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

“If mortgage rates stabilize at around the current level of 5.3% and job gains continue, home sales could stabilize in the coming months as well,” Yun said. But “if mortgage rates go up to 6%, then sales activity could drop 15%.

Lily: Pending home sales fall for sixth consecutive month due to high prices and mortgage rates

According to Rene Reyna, head of thematic and specialty product strategy at Invesco, with interest rates rising as inflation intensifies amid growing fears of a slowing economy, the ETF Dynamic Invesco’s Building & Construction has seen cash outflows so far this year.

By contrast, Reyna said over the phone that he’s seen investors favor consumer staples, a defensive sector, through demand for the Invesco Dynamic Food & Beverage PBJ ETF,
+0.90%.
ETF shares fell just 0.4% this year through Wednesday, compared to a 16.5% loss for the S&P 500 SPX index,
-0.02%,
Display of FactSet data.

“Investors are looking for ways to insulate themselves,” Reyna said.

Here’s your weekly look at the best and worst performers from last week through Wednesday, according to data from FactSet.

Good…
Top Winners %Performance

First Trust Natural Gas ETF FCG,
+4.25%

10.1

United States UNG Natural Gas Fund,
+3.90%

9.1

SPDR S&P Oil & Gas Exploration & Production ETF XOP,
+4.56%

8.6

VanEck Oil Services ETF OIH,
+2.75%

7.6

iShares US Oil & Gas Exploration & Production ETF IEO,
+4.01%

7.2

Source: FactSet, through Wednesday, May 25, 2022 excluding ETNs and leveraged products. Includes ETFs traded on the NYSE, Nasdaq and Cboe of $500 million or more

…the 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 outside China. and Hong Kong. The regulatory filing process for 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 the launch of the PGIM Floating Rate Income ETF PFRL,
    +0.04%,
    an actively managed fund that invests primarily in floating rate senior loans. “We have seen increased demand for floating rate strategies as investors seek to hedge against rising rates,” said Stuart Parker, president and CEO of PGIM Investments, in the announcement.

The weekly ETF reads as follows: