3 ETFs To Buy As New Home Sales Surge

After losing momentum in August, new home sales in the United States turned around. Sales of new U.S. single-family homes suddenly grew in September, touching the highest level in about 10 years, and defying economists’ expectations of a 0.9% decline. The percent sales surge was the highest since January 1992, as per CNBC.  Notably, new home sales slumped 3.4% in August (read: After Raft of Weak Data, What Lies Ahead for Housing ETFs?).

According to the Commerce Department, new home sales jumped 18.9% to a seasonally adjusted annual rate of 667,000 units last month thanks to an uptick in sales in all four regions. The figure came in considerably higher than August's upwardly revised sales pace of 561,000 units. Investors should note that new home sales make up about 11% of overall home sales.

The housing market has long been under pressure due to low inventory, lack of skilled labor and shortages of lands. However, the latest optimism gives different signals. Homebuilder confidence ticked up to a six-month high in October. 

Why the Surge?

Need for reconstruction post hurricanes have probably given a boost to home sales. In Houston, many homes were under water during Hurricane Harvey, and as soon as the situation improved, demand for repairs went up. And for fully-ravaged homes, the need was even more. (read: Home Retailer ETFs Set to Gain After Harvey).

As per an article published on CNBC.com, “the number of homes destroyed in the hurricane is higher than the total number of regular new home permits estimated for Houston this year.”

Though things could turn sour as treasury yields are on the rise on faster Fed policy tightening expectations. The yield on 10-year U.S. Treasury notes was 2.44% on Oct 25, 2017, up from the month’s lowest level of 2.28% on Oct 13. Since housing is a rate-sensitive sector, it may underperform in a rising rate environment.

Plus, higher material prices and labor crunch may hurt the space over the long term as prices may shoot up. Still investors can play the space as soon as momentum returns. Below we highlight a few ETFs that could benefit from the recent bounce. (see: all the Materials ETFs here).

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