Are Housing ETFs Ready To Ride On Spring Selling Season?

The U.S. housing market has endured a rough phase so far this year. Uneven data points are leaving investors perplexed as they are finding it difficult to get a handle on the future course of the housing stocks and the related ETFs.

 Moreover, Wall Street saw the worst start to a year in 2016 on global growth concerns. This in turn dragged down bond yields which should have favored rate-sensitive sectors like homebuilding. But in reality the sector nosedived.
 
While readings like the six-month high existing home sales for January or ‘solid rise in house prices in the year to December’ boosted investors’ sentiments, soft new home sales data for January was a dampener.
 
Has Spring Sprung Gains? 
 
Having said this, we would like to note that we are at the start of the key spring selling season and the sector is likely to cross the present hurdles in the days to come. Analysts now expect existing home sales to march ahead at a pretty stable pace of 5.36 million units in the first quarter of 2016 and 5.40 million units in the second quarter, leading to six consecutive quarters of sales above 5.0 million units (read: 5 ETFs to Watch in March).
 
Along with several other analysts, even we believe that moderate increases in prices along with job growth and improving consumer confidence should strengthen the operating backdrop of the housing sector going forward (read:Time to Buy Housing ETFs Despite Mixed D.R. Horton Earnings).
 
Renowned homebuilder D.R. Horton believes that it is on the track to meet housing demand in the all-important spring selling season as well as in fiscal 2016 on the back of encouraging sales trends in January, a healthy backlog, steady lot supply and a strong inventory ready for sale.

To add to this, rising rate concerns are not yet chasing us despite the Fed lift-off in December. Global growth worries have kept a lid on bond yields and are favoring rate-sensitive sectors like housing. Even if rates rise in the near term, it would be accompanied by wage gains and a broad-based economic recovery. So, interest rates are not that big an issue for the housing sector (read: Short Rate-Sensitive Securities with These ETFs).
 
However, pricing is trending up for the sector. As per Analysts, U.S. home prices are likely to gain 5% this year – the same level it added in 2015 – despite rate-related worries thanks to a tight supply scenario and growing demand. In January, the National Association of Realtors’s listing site, Realtor.com, revealed that listings were down 4.4% year over year. As per Fitch, a lower housing inventory is due to ‘the limited supply of better-located lots suitable for the trade-up market’.
 
Whatever be the case, the underlying vibes in the homebuilding sector is affirmative. As per analysts, persistent price rise will of course hurt the sector, but this would prompt sellers to put their homes up for sale which in turn would boost inventories. So, investors can keep an eye over the housing ETFs to tap the potential surge in sales.