3 Homebuilder ETFs to Buy on Robust Housing Demand

NYSE: XHB | SPDR Series Trust SPDR Homebuilders ETF News, Ratings, and Charts

XHB – The housing industry is expected to witness surging demand this year in light of the continuation of remote lifestyle and low inventory and mortgage rates. So, ETFs such as SPDR S&P Homebuilders (XHB), Hoya Capital Housing (HOMZ) and iShares U.S. Home Construction (ITB), could deliver strong returns.

The real estate industry was one of the most prominent performers last year, registering record gains since the 2008 bubble. Along with the pandemic-induced remote working and learning culture, low mortgage rates bolstered the demand for housing last year. A larger proportion of young people entering the workforce also contributed to the rising demand.

Realtor.com’s chief economist Danielle Hale recently stated in a Forbes article that housing sales are likely to increase 7% this year, while prices will rise 5-7% from 2020 values. One of the main reasons behind such price rise is the supply-related constraints, as most real estate companies are reporting low inventories.

Apart from the mainstream housing industry, the ancillary home repairing and renovating segments have also been outperforming the broader markets, as people have actively taken up home improvement projects with ample spare time on their hands amid the pandemic. With most companies announcing their goals to adopt a hybrid work model post pandemic, the demand for such home development products should increase over the coming months. This, coupled with President Biden’s $500 billion sustainable infrastructure investment plan, should allow the housing industry to maintain its growth momentum in the long run.

In light of such developments, we think ETFs such as SPDR S&P Homebuilders ETF (XHB), Hoya Capital Housing ETF (HOMZ), and iShares U.S. Home Construction ETF (ITB) should deliver impressive returns in the upcoming months.

SPDR S&P Homebuilders ETF (XHB)

XHB is one of the most popular ETFs in the homebuilding industry, investing in companies operating in the US housing sector. This ETF follows an equal weighting policy, assigning equal importance to all portfolio holdings, thereby eliminating investment noise and minimizing risk. It closely tracks the S&P homebuilders Select Industry Index with approximately $1.46 billion assets under management. XHB has an MSCI ESG Fund Rating of A, and is currently ranked in the 77th percentile among its peer group. Its top holdings include Williams-Sonoma, Inc. (WSM), RH (RH), and Johnson Controls International plc (JCI).

XHB has an expense ratio of 0.35%, significantly lower than the category average of 0.55%. The ETF has gained 32% over the past year, 102.9% over the past nine months, and 15.6% over the past three months.

XHB pays $0.42 in dividends annually, yielding 0.66% on the current price. Its dividend payouts have increased at a CAGR of 10% over the past three years. The ETF’s four-year average dividend yield is 0.88%.

How does XHB stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating.

You can’t ask for better. It is currently ranked #6 of 45 ETFs in the Consumer-Focused ETFs group.

Hoya Capital Housing ETF (HOMZ)

HOMZ invests in companies operating in at least one of the following housing-related segments – Home Ownership and Rental Operations, Home Building and Construction, Home Improvement and Furnishings, and Home Financing, Technology and Services. The weighting of each holding is determined based on its segment’s contribution to the country’s GDP. HOMZ has an MSCI ESG Fund rating of BBB, reflecting its resiliency in environmental, social, and corporate governance related matters. It is ranked in the 94th percentile within all ETFs rated by MSCI.

HOMZ is a passively managed ETF with approximately $44.70 million in assets under management, seeking to replicate the returns of the benchmark Hoya Capital Housing 100 Index. Its top holdings include Lowe’s Companies, Inc. (LOW), Home Depot, Inc. (HD) and Tri Pointe Homes, Inc. (TPH).

HOMZ has an expense ratio of 0.3%, 170 basis points lower than the category average of 0.47%. The ETF has gained 15.4% over the past year, 73.3% over the past nine months, and 13.8% over the past three months. It currently pays $1.02 in dividends annually, yielding 2.94% on the prevailing price. Its four-year average dividend yield is 1.38%.

It’s no surprise that HOMZ is rated a “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. In the 26-ETF Real Estate ETFs group, it is currently ranked #3.

iShares U.S. Home Construction ETF (ITB)

ITB has a pure play market capitalization weighted investing approach, targeting some of the largest homebuilding companies operating in the United States. The ETF also branches out to invest in diversified companies operating in this sector as well, having indirect exposure to the U.S. housing industry. With approximately $2.21 billion in assets under management, ITB tracks the underlying The Dow Jones U.S. Select Home Construction Index.

ITB has an MSCI ESG Fund Rating of A, indicating strong fundamentals regarding environmental, social, and corporate governance matters. Its major holdings include D.R. Horton, Inc. (DHI), Lennar Corporation (LEN), and NVR, Inc. (NVR), cumulatively accounting for nearly 30% of the total portfolio.

ITB has an expense ratio of 0.42%, considerably lower than the category average of 0.55%. The ETF has gained 28.8% over the past year, 100.8% over the past nine months, and 12% over the past three months. It pays $0.26 in dividends annually, yielding 0.42% on the current price. ITB’s dividend payouts have increased at a CAGR of 28.6% over the past three years. Its four-year average dividend yield is 0.46%.

ITB’s POWR Ratings reflect this promising outlook. It is currently rated a “Strong Buy”, with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade. In the 32-ETF Industrial Equities ETFs group, ITB is currently ranked #5.

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XHB shares were trading at $63.40 per share on Monday afternoon, down $0.16 (-0.25%). Year-to-date, XHB has gained 9.99%, versus a 2.45% rise in the benchmark S&P 500 index during the same period.


About the Author: Aditi Ganguly


Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...


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