Homebuilding ETFs Standing Tall Amid Rising Costs

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The housing market, which has been booming over the past year, has started to see signs of cooling down. This is especially true as new home sales dropped 18.2% in February and existing homes sales fell 6.6% from January.

The National Association of Home Builders/Wells Fargo Housing Market Index showed that the builder sentiment for newly-built, single-family homes dropped to 82 for March from 84 in February, 83 in January, and 90 in November but well-off compared to the lowest level of 30 since June 2012 seen in April last year.

The drop stemmed from surging raw material prices for commodities like lumber and wood, increasing construction costs and rising mortgage rates. Lumber has never been more expensive and is currently more than twice the price for this time of the year. According to the National Association of Home Builders, lumber costs have spiked 180% since last April, increasing the cost of building an average single-family home by $24,000.

Crude oil, a starting point for paint, drain pipe, roof shingles and flooring, has shot up more than 80% since October. Copper, which carries water and electricity throughout houses, costs about a third more than it did in autumn. Prices for granite, insulation, concrete blocks, and common brick have all shot up to new records in 2021, according to the Bureau of Labor Statistic’s producer-price index Drywall and ceramic tiles also climbed but are well below the record prices.

Meanwhile, mortgage rates have started to climb from the rock-bottom levels in tandem with U.S. Treasury yields. According to Freddie Mac, the average 30-year fixed mortgage rate rose to nine-month high of 3.17% as of Mar 25, up from 3.09% a week ago, 2.65% at the start of the year, and 3.5% a year ago. Though the sustained rise in mortgage rate in recent months is making homeownership more expensive for first-time buyers, the rate is still below the year-ago level of 3.65%. This will continue to encourage people to buy more homes as it has made refinance cheaper. This trend is likely to continue at least this year on the Fed’s easy money policy.

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