To The Moon

After the Federal Reserve announced dovish policies last week, homebuilders' exchange-traded funds (ETFs) saw a strong rally, breaking historical records.

The two largest homebuilder ETFs, SPDR S & P Homebuilders ETF (XHB) and iShares US Home Construction ETF (ITB), rose more than 8% and 9% respectively from Wednesday to Friday last week. As of now, these two ETFs have risen by 58% and 67% respectively this year, and their trading prices have also reached historic highs. This strong growth indicates investors' confidence in these companies and the entire residential construction industry.

Market Drivers: The main driving factor is the shortage of inventory in the resale market, which stimulates the growth of demand for new homes. The recent reduction in mortgage rates and the signal of the Federal Reserve's interest rate cut have once again stimulated the real estate market. This makes the residential construction industry, known for its sensitivity to interest rate changes, expected to gain greater potential benefits.

Mortgage Rates Stimulate Market: Last week, mortgage rates fell below 7% for the first time and remained at their lowest level since July, injecting new vitality into the real estate market. With the decline in mortgage rates, potential home buyers increased, driving up sales. Due to the low inventory of existing homes in the market, creating opportunities for new construction, the start rate of new homes jumped to the highest level since May.

Future Expectations: The Federal Reserve is expected to cut interest rates three times by 2024, making builders more optimistic about the future. According to data from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), homebuilder confidence improved for the first time in five months in December, adding luster to the outlook.

Industry Advantage: Home builders are currently in a strong position and are one of the highest-ranked industries (ranked in the top 21% out of more than 250 industries), indicating a strong outlook for the industry. Against the backdrop of declining interest rates, tight supply and improving demand combine to support the industry's huge optimism.

ETF Overview:

1. iShares US Residential Construction ETF (ITB)

• ITB provides investment in companies that manufacture residential homes in the US by tracking the Dow Jones US Select Residential Building Index.

• Asset Under Management is $2.40 billion and holds 46 stocks weighted by market capitalization.

• The annual fee is 40 basis points and the average daily trading volume is approximately 3 million shares.

• Ranked third in the Sachs ETF ranking, with high risk.

1. SPDR Standard & Poor Home Builders ETF (XHB)

• XHB provides residential builders with diversified investments in building products, home furnishings, home improvement retail, home retail, and home appliances.

• Tracks the S & P Homebuilders Select Industry Index, which includes 35 stocks.

• Asset Under Management is $1.70 billion and average daily trading volume is 4 million shares.

• The annual fee is 35 basis points, which is the third largest in the Sachs ETF ranking and has a high risk outlook.

Through these motivations and data, it can be seen that the home builder ETF has achieved significant gains in the current environment, and the market's expectations for the future are also optimistic.