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Have the Macro Stars Aligned for US Homebuilders?

By Tarek Saed

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.

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.

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.

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

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.

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.”

Disclaimer: We don’t usually have views and opinions about economic and financial states of affairs, (not ones that we express publicly as a company, anyway). We do believe, however, that people can and do appreciate a variety of perspectives. What you’ve just read is the perspective of the author. While we think our writers are very smart, Macrobond Financial does not expressly endorse the views presented here. And, as the old adage goes, you shouldn’t believe everything you read (not without finding the data, performing a few analyses and presenting it in a nice chart). We want to make it clear that we are not offering this information as investment advice. That being said, if you have Macrobond, you can easily check everything that’s mentioned here, and decide for yourself. If you don’t have Macrobond, now you have a great reason to get it.

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