Looming rate cuts has been pushing the +Direxion Daily Homebuilders and Supplies Bull 3X Shares+ (NAIL ) ETF higher. The fund has been on an upward trajectory since mid-July. It could rise further as the real estate market improves.
A Reuters report noted that single-family homebuilding rebounded last month with a moderate increase in building permits. Homebuilders are facing stiff competition from an increased supply in existing homes. This is giving prospective real estate buyers more options to consider.
“A renewed dip in single-family construction activity is likely over the next few months as homebuilders seem to have responded too aggressively to the slight upturn in new home sales in 2023, and are now left with an excessive level of inventory,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. “Lower mortgage rates will help boost demand for new homes at the margin.”
If rate cuts can continue providing bullish tailwinds for home builders, NAIL is an ideal play to build off the early momentum. The fund seeks daily investment results of 300% of the daily performance of the Dow Jones U.S. Select Home Construction Index. The index measures U.S. companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers, and suppliers of building materials, furnishings, and fixtures.
Play Short-Term Weakness
According to the aforementioned article, the National Association of Home Builders survey revealed positive results. Improving sentiment, though marginally, ended a four-month slide. However, the NAHB noted that “builders will face competition from rising existing home inventory in many markets as the mortgage rate ‘lock-in’ effect softens with lower mortgage rates.”
If any short-term weakness takes place in the real estate market, traders can opt to use the Direxion Daily MSCI Real Est Bear 3X ETF (DRV ). The fund seeks daily investment results equal to 300% of the inverse of the daily performance of the MSCI US REIT Index. This index includes securities of companies from the following industries: real estate management and development and real estate investment trusts (REITs), excluding mortgage REITs.
As opposed to strictly homebuilders, DRV is more representative of the general real estate market. However, it can still be used as an option to take the other side of the NAIL trade. With rate cut expectations looming, both funds have been heading in opposite directions as of late.
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