5 Stocks Driving Homebuilding ETF To New Highs

The housing sector has emerged strongly from the COVID-19 pandemic. In fact, the S&P Homebuilders Select Industry Index reached a record high in 15 years early this month, having more than doubled from the low it reached in late March.

Tumbling mortgage rates and higher demand for new homes are driving homebuilders higher. This is because record-low mortgage rates are encouraging people to buy more homes and have made refinance cheaper. This trend is likely to continue at least this year on the Fed’s easy money policy.

Homebuilder confidence has also been rising lately, as builders are feeling better about their business than at any time over the past 20 years. After plunging to 30 in April, the National Association of Home Builders/Wells Fargo Housing Market Index jumped back to 78 in August — the highest level in its 35-year history and matches the record set in December 1998. Housing starts have also risen for three straight months after plunging in March and April. Notably, July home construction jumped the most in nearly four years while existing home sales surged by the most on record.

Moreover, homebuilders are currently well placed, belonging to a top-ranked Zacks industry (placed at the top 2% of 250+ industries), suggesting a solid outlook. However, labor shortage, rising construction costs and high unemployment could remain as causes of concern.

Given the optimistic scenario, iShares U.S. Home Construction ETF (ITB - Free Reportis up nearly 27.9% in the year-to-date timeframe and reached a new 52-week high in the latest session. Let’s take a closer look at the fundamentals of ITB.

ITB in Focus

This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds 44 stocks in its basket with heavy concentration on the top two firms. Homebuilding and building products take the largest share at 66.1% and 14.2% of assets, respectively, while home improvement retail and specialty chemicals take a minor portion in the fund’s basket. The product has amassed $2.2 billion in its asset base and trades in a solid volume of around 3.1 million shares a day. It charges investors 42 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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