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Have the Macro Stars Aligned for US Homebuilders?

The macroeconomic factors impacting US home construction revealed. By Tarek Saed.

By 
Tarek Saed
 on 
October 20, 2020

The iShares U.S Home Construction ETF (ITB) has soared by rallying over 30% since the beginning of this year. The purpose of this piece is to dive into relevant macro factors that may have played a key role in this rally. You’re going to want to put your hard hat on for this one.

Firstly, it is important to compare the rally in ITB to a common benchmark, in this case the S&P 500. Clearly ITB has been outperforming the S&P 500 since the beginning of the year, and hence, this is worth exploring further.

Chart showing ishare rally

First thing that sticks out is the fact that 30-year mortgage rates have dropped to an all-time low, which can be attributed to the Fed’ slashing policy rates in response to covid-19 impacts on the economy. What’s more is that the Fed plans to keep their low policy rate in play for years until inflation begins to pick up. This has made purchasing a home more appealing and accessible to many.

chart showing US mortgage lending rates

Do not take my word that it is easier for Americans to purchase homes now, the chart below speaks for itself! Home ownership has exponentially soared during this pandemic, surpassing the mean value (1964 – 2020) as well as the upper standard deviation band to reach levels not seen since the 2008 housing crises.

Chart showing US home ownership rate

With the sudden demand for homes, supply for existing single family homes has reached…wait for it..a record low since 2000!

Chart showing single family home supply, SA, NAR

So, when supply for single family homes dropped to a record low, we noticed a major “v” shape recovery in housing starts for single family homes. A “housing start” is counted when construction begins on the footings or foundations of a residential structure.

Chart showing recovery for US housing starts

There you have its folks. The potential macro factors that have helped ITB soar this year have been laid out. Now all that is left for me to do is leave you with this great construction joke:

“Went to a party with a construction team the other week. They really raised the roof.”