The average rate on a typical 30-year fixed rate mortgage fell to its lowest level since October, which could feed into strength for homebuilder ETFs. According to Mortgage News Daily, the rate fell to 3.69%, which could have prospective home buyers rethinking a real estate purchase in 2020.
This fall in rates couples increased buyer sentiment tracked by a monthly survey put out by secondary mortgage market participant Fannie Mae (HPSI). According to the survey, sentiment was high in the month of December—a time even when buyers are wary of their finances given the propensity to spend during the holidays.
“The continued strength in the HPSI attests to the intention among consumers to purchase homes. This is consistent with the Fannie Mae forecast for 2020,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The HPSI hit and remained near an all-time high in 2019, driven by the 16-percentage point year-over-year increase in the share of consumers believing it is a good time to buy.”
Increased demand for housing is also showing itself in the price of home prices. According to real estate analytics firm CoreLogic, prices rose 3.7% annually during the month of November, which poses its largest gain since last February.
“The latest U.S. index shows that the slowdown in home prices we saw in early 2019 ended by late summer,” said Dr. Frank Nothaft, chief economist at CoreLogic. “The decline in mortgage rates, down more than one percentage point for fixed-rate loans from November 2018, has supported a rise in sales activity and home prices.”
Lower mortgage rates could continue to give the housing market a much-needed boost, which could translate to more strength for homebuilders. Rising rates, low affordability and rising homebuilder costs due to tariffs have been thorns in the side for the housing market the past couple of years. In particular, the SPDR S&P Homebuilders ETF (XHB ) is starting to see institutional investor interest rise.
XHB seeks to provide investment results that correspond generally to the total return performance of an index derived from the homebuilding segment of a U.S. total market composite index. In order to track the performance of the S&P Homebuilders Select Industry Index, the fund employs a sampling strategy.
Leveraged plays on home builder stocks include the bullish Direxion Daily Homebuilders and Supplies Bull and Bear 3X Shares (NAIL ), which attempts to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index.
This article originally appeared on ETFTrends.com.