Tuesday, June 2nd, 2020
According to a recent Wall Street Journal article, home builder share prices have been stock market standouts this month and are signaling that investors are betting on a swift housing recovery as stay-at-home orders are lifted.
The iShares U.S. Home Construction ETF (ticker ITB), composed of major builders, home-improvement retailers and other related stocks, surged 18% in May, compared with the S&P 500’s 4.5% monthly gain.
The outperformance of stocks in the residential real-estate industry marks a sharp turnaround from the steep selloff that many of the companies faced when the market plummeted this year.
Investors have had reason to cheer the home-building industry lately, even as the country continues to grapple with steep unemployment and diminished consumer spending. Mortgage applications for home purchases have increased for six consecutive weeks, jumping 54% since early April, according to the Mortgage Bankers Association. Sales of newly built homes, meanwhile, unexpectedly rose 0.6% in April from the prior month, according to national figures released this week.
Redfin Corp. also said its seasonally adjusted measure of home-buying demand, which tracks buyer inquiries, was 16.5% higher for the week ended May 17 than it was before the pandemic — a change the real-estate brokerage attributed to record-low mortgage rates. The weekly average for the 30-year fixed-rate mortgage fell to 3.15%*, Freddie Mac said Thursday, the lowest level in its survey’s nearly 50-year history (*0.8 Fees/Points).
Still, it remains unclear how severe the economic damage from the coronavirus will be — and whether Americans will want or be able to afford large purchases. Home prices have continued to increase, Redfin recently said. And, as noted in last month’s newsletter, it is getting more difficult for borrowers to secure a mortgage, as lenders impose tougher income, credit-score and down-payment standards.