Market Insights

Housing stocks have barely dropped this month, even as volatility swept the broader market.

The iShares U.S. Home Construction ETF (ITB) closed yesterday just 2.6 percent below its 52-week high. The S&P 500 in contrast, is almost 8 percent below its peak. The Nasdaq-100 is still down 10 percent.

The shallow pullback in homebuilders seems to reflect tailwinds for housing stocks. The industry began 2020 on a strong footing as it finally recovered from the 2008-2010 subprime mortgage crisis. Inventories were low and demand was improving as millennials started raising families.

Coronavirus gave housing another boost. First, it drove interest rates down. Thirty-year mortgage rates have dropped under 3 percent for the first time ever, according to Freddie Mac. They were closer to 5 percent at this time in 2018.

Second, the pandemic and social distancing has made urban life unappealing for millions of city dwellers. Various reports from Realtor.com, the National Association of Home Builders (NAHB), Redfin and John Burns Real Estate Consulting have confirmed this suburban shift.

Strong Housing Data

Economic data on housing has also been very strong — even with the rest of the economy shrinking dramatically. Here are some recent numbers:

• Existing home sales totaled 6 million (on an annualized basis) in August. That was the highest total since December 2006. National Association of Realtors Chief Economist Lawrence Yun said “there are plenty of buyers in the pipeline ready to enter the market. Further gains in sales are likely for the remainder of the year.” (9/22)
• NAHB reported the second straight record-setting month of confidence in September. Strong demand was cited — especially in the suburbs. (9/16)
• Corelogic said home prices nationally rose 5.5 percent in July, the fastest increase in two years. (9/1)

Another report disappointed on the surface, but reflected the same underlying trend of people leaving apartments for the suburbs. August housing starts fell much more than expected last week after multifamily construction plunged 23 percent. Meanwhile single-family starts grew 4.1 percent.

Realty Shares to Know

In conclusion, housing seems to enjoy several tailwinds. It may continue to benefit regardless of the coronavirus situation. More lockdowns could fuel suburban living and keep interest rates low. An easing of the pandemic could also boost the economy and give Americans confidence to buy a home.

This table highlights the top 10 members of ITB. Most are homebuilders. Others are retailers and suppliers of building materials and housing-related services.