Summer is typically a time when consumers are actively looking for new homes. The housing market tends to be significantly more active in the spring and summer months. Many homebuyers are looking to get settled before the new school year kicks in, as well as take advantage of the number of fresh listings.
Notably, however, sales of pre-owned homes fell 3.3% in June compared with May. This is a seasonally adjusted annualized rate of 4.16 million units, according to the National Association of Realtors.
This is a significant drop in contrast to June 2022. Sales fell 18.9%, recording the most sluggish sales pace for June since 2009.
Yet, rather than a lack of available homebuyers, the opposite is actually the case. Continued weakness in the housing market is due to an ongoing shortage of available homes. Only 1.08 million homes were for sale at the end of June, a 13.6% decline from June of the prior year. At the current sales pace, that translates to a 3.1-month supply. That’s well below the six-month supply, which is typically considered a balance between buyer and seller.
“There are simply not enough homes for sale,” said Lawrence Yun, chief economist for the Realtors. “The market can easily absorb a doubling of inventory.”
Mortgage Rates Are Likely Affecting The Housing Market
There are several consequences as a result of this trend. One result is that housing prices continue to remain lofty. The median price of an existing home sold in June was $410,200, the second largest price ever recorded by the Realtors, with only June of 2022 being marginally higher.
“Home sales fell, but home prices have held firm in most parts of the country,” Yun said. “Limited supply is still leading to multiple-offer situations, with one-third of homes getting sold above the list price in the latest month.”
Still, the lower end of the market is more active now, given the spike in mortgage rates. While housing prices remain firm, mortgage rates continue to put pressure on affordability for homebuyers. They remain in the 6-7% range, significantly higher levels than prospective homebuyers faced just several years ago.
First-time buyers are having the toughest battle finding a home, with that segment of June sales falling to 26%, down from 30% in June 2022, a new low since Realtors began tracking this metric.
Meanwhile, wealthier cash buyers seem to be more successful, driving up the higher end of the market. Higher-end home sales were down the least, according to the data, a key change from the prior year’s numbers. All-cash sales represented 26% of June transactions, a larger delta than May and June last year.
“Despite continued higher mortgage rates and inflationary pressures, our net sales orders increased 37% from the prior year quarter, as the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable,” said Donald Horton, chairman of the board at the nation’s biggest homebuilder, DH Horton, in a release.
HomeBuilder ETF Options For Investors
Many funds are available for ETF investors looking to diversify using homebuilder and home-related funds. Here are a couple of options:
The iShares U.S. Home Construction ETF (ITB ) offers exposure to the U.S. homebuilding industry and, as such, offers exposure to a corner of the domestic economy that tends to be cyclical in nature. In addition to pure play homebuilders, this fund includes companies related generally to the homebuilding industry, such as Home Depot. For homebuilder exposure, ITB is competitive in terms of expense ratio but may be significantly more concentrated than other options.
The Invesco Dynamic Building & Construction ETF (PKB ) offers exposure to the U.S. homebuilding industry and, as such, offers exposure to a corner of the domestic economy that tends to be cyclical in nature. In addition to pure play homebuilders, this fund also includes companies related generally to the homebuilding industry, such as Home Depot. PKB might have appeal for investors looking for exposure to homebuilders who believe the methodology used by the underlying index—which utilizes quant-based stock screens—is capable of generating alpha.
For more news, information, and analysis, visit the Innovative ETFs Channel.
