Market Overview

Should You Add Homebuilders To Your Portfolio?

Should You Add Homebuilders To Your Portfolio?

Homebuilders have seen a surge in demand this year, as more Americans gain full-time employment and have the spending power to purchase own homes.

Government data showed that U.S. residential construction spending exceeded $36 billion in August, the highest it has been since 2007.

While most agree that the housing market is on the road to recovery, others worry that adding homebuilders to their portfolio could be a risky move.

Who Is Buying?

One of the biggest questions for the housing market is whether owning a home is a priority to the ever-important Millennial generation.

While a better job market means that young Americans may have the financial ability to purchase a home, many Millennials are expected to opt for renting instead because of the flexibility it offers. This is also true for Baby Boomers, who are entering a downsizing phase and may want to rent in order to keep their options open.

Related Link: Going Home With Homebuilders ETFs

Homebuilders See Increased Demand

Despite those factors, homebuilders have seen a healthy increase in demand this year. The SPDR S&P Homebuilders (ETF) (NYSE: XHB) has gained 25.69 percent since October 2014, and the iShares Dow Jones US Home Const. (ETF) (NYSE: ITB) has gained 6.64 percent over the past six months.

Big name builder Toll Brothers Inc (NYSE: TOL) was recently upgraded from Equal Weight to Overweight by Morgan Stanley, as the firm sees the luxury housing market expanding in 2016.

Still Some Risk

While demand paints a rosy picture for the U.S. housing market, a labor shortage among builders could weigh on their growth.

Attracting workers with necessary skills has become increasingly difficult as unemployment dwindles, that means completing houses takes longer and costs more. This combination could lead to higher home prices, something that may suppress demand.

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