Record Housing Shortage Lays The Foundation For This Homebuilders ETF

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

While the ongoing global COVID-19 pandemic has disrupted most facets of everyday life through the past year, one area of the domestic economy that has seemingly not seen demand falter is home sales.

Indeed, with mortgage rates below 3%, personal savings rates and income at historical highs and persistent housing supply shortages that are now at an all-time low, all of the pieces seem in place for continued strength for homebuilding stocks.

These are longstanding trends that go back more than five years, and they have helped boost growth among constituents in the Dow Jones U.S. Select Home Construction Index (DJSHMBT). And while the index has cycled between strong growth and dramatic contraction since 2018, it again seems to be on the upswing in the approach to peak homebuying season.

This pattern of growth and contraction can be clearly seen in the multi-year chart for the Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL, which aims to deliver 300% the daily performance of the Dow Jones index.

While NAIL is off of the high it was sitting at roughly a year ago, the ETF has recovered much of the ground it lost through the depths of the pandemic-driven sell-off back in February and March of last year. It’s now at the $60 range and within striking distance of a new 52-week high.

Although the strong fundamentals surrounding the domestic housing market are encouraging for a continued rise in home prices, the engine of the fund’s growth still rests with the positive revenue trends that the principal homebuilding concerns continue to put up quarter after quarter.

Recently announced top-and bottom-line Q4 earnings beats from major constituents like Lennar Corporation LEN and PulteGroup, Inc. PHM continued a long trend of upside earnings surprises from much of the homebuilders group, with LEN seeing about 1% growth through the year while PHM posted year-over-year revenue growth of roughly 8%.

However, the earnings standout among the major homebuilders is D.R. Horton, Inc. DHI, which closed the books on the 2020 fiscal year with more than 15% sales growth. The company’s most recent earnings release from its Q1 2021 also indicates the company’s sales growth hasn’t slowed down as revenue grew nearly 50% over that period last year.

And while these figures represent the major constituents of the industry, the positive earnings trend is fairly consistent among a plurality of home construction companies. Meritage Homes Corporation MTH, Eagle Materials Inc. EXP, Taylor Morrison Home Corporation TMHC have all reported double-digit YoY percentage growth in their most recent reports.

As the U.S slowly enters peak housing season, and, hopefully, puts the worst of the pandemic behind it, these trends are only likely to grow more pronounced. With housing supply and demand pushing the limits on both ends and more Americans able to afford a down payment at stellar rates, 2021 may be the biggest year for home prices the country has ever seen.

Past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Short term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.