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May 28, 2022, 11:06 a.m. EDT

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

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By Christine Idzelis

Hi! In this week’s ETF Wrap, we look at the steep drop in homebuilder ETFs this year, as new homes sales have fallen in the U.S. amid high prices and rising interest rates. 

Please send tips and feedback to christine.idzelis@marketwatch.com. You can also find me on Twitter at @cidzelis and LinkedIn .

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Homebuilder exchange-traded funds are sliding this year, pummeled by rising interest rates and soaring prices in the housing market.

Shares of the iShares U.S. Home Construction ETF /zigman2/quotes/203468436/composite ITB -0.81% and SPDR S&P Homebuilders ETF /zigman2/quotes/202739297/composite XHB -0.64% have each tumbled more than 30% in 2022 through Wednesday, according to FactSet data. The Hoya Capital Housing ETF /zigman2/quotes/203278229/composite HOMZ -0.42% dropped 22% over the same period, while shares of the Invesco Dynamic Building & Construction ETF /zigman2/quotes/202710470/composite PKB -0.35% slid almost 26%. 

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

“That’s a very important resistance line” to get above for “any sense that momentum could shift to the positive,” said Frank Cappelleri, a desk strategist at Instinet, in a phone interview. 

On Tuesday, the SPDR S&P Homebuilders ETF hit a new 52-week low, according to Cappelleri. That’s the day the U.S. government released data showing new home sales tumbled in April. 

“There’s lots of stagflation in the new home market,” wrote Yardeni Research in a note Tuesday. “A combination of soaring home prices and rapidly rising mortgage rates have slammed the affordability of buying a home.”

Sales of new homes in the U.S. 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 U.S. Census Bureau and the U.S. Department of Housing and Urban Development. That marked a fourth straight month of declines. 

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 past 24 months, while the average price is up 58.3% over the same period!”

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

“If mortgage rates stabilize roughly at the current level of 5.3% and job gains continue, home sales could also stabilize in the coming months,” said Yun. But “if mortgage rates climb to 6%, then the sales activity could fall by 15%.

Read: Pending home sales fall for sixth straight month due to high prices and mortgage rates

With interest rates rising while inflation runs hot amid growing fears over a slowing economy , Invesco’s Dynamic Building & Construction ETF has seen outflows so far this year, according to Rene Reyna, head of thematic and specialty product strategy at Invesco. 

By contrast, Reyna said by phone that he has seen investors favoring consumer staples, a defensive sector, through demand for the Invesco Dynamic Food & Beverage ETF /zigman2/quotes/200461180/composite PBJ -0.32% . Shares of the ETF have dipped just 0.4% this year through Wednesday, compared with a loss of 16.5% for the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.36% , FactSet data show.

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

/zigman2/quotes/203468436/composite
US : U.S.: Cboe BZX
$ 56.00
-0.46 -0.81%
Volume: 3.88M
July 6, 2022 4:00p
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/zigman2/quotes/202739297/composite
US : U.S.: NYSE Arca
$ 57.58
-0.37 -0.64%
Volume: 2.53M
July 6, 2022 4:00p
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/zigman2/quotes/203278229/composite
US : U.S.: NYSE Arca
$ 33.14
-0.14 -0.42%
Volume: 1,324
July 6, 2022 4:10p
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/zigman2/quotes/202710470/composite
US : U.S.: NYSE Arca
$ 38.40
-0.13 -0.35%
Volume: 9,520
July 6, 2022 4:10p
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/zigman2/quotes/200461180/composite
US : U.S.: NYSE Arca
$ 43.75
-0.14 -0.32%
Volume: 68,977
July 6, 2022 4:10p
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US : S&P US
3,845.08
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