New Home Sales Hit a 13 Year High

August 31, 2020
201 Views

The U.S. home market could start to recover before the rest of the economy, with new home sales hitting a 13 year high in July.

Newly built home sales increased by 13.9% in July, with a seasonally adjusted rate of 901,000 units. The data hasn’t been this strong since December 2006, and it’s good news for some areas of the economy.

Here’s what’s driving the growth, along with an ETF pick that offers exposure to the trend.

Growth Could Continue as Demand Outpaces Construction

New home sales make up just 13% of the total home market, but they’re an important metric for the wider economy. New homes create engagement in the construction industry, the timber and metal industries, and smaller service industries comprised of electricians, interior designers, architects, and other professionals.

Compared to June, new home sales jumped by 13.9%, but it’s the year-over-year growth that is most impressive. Compared to the same time last year, sales are up 34%.

Analysts believe that this growth is likely to continue. Building permit applications increased by 18.8% in July with 1.5 million permits processed.

Even existing home sales have performed well. There was a 24.7% rise in this category on a seasonally adjusted basis. Existing homes contribute less to the wider economy but they can still generate activity in the form of renovations and improvements supplied by local construction firms and specialist professionals.

What’s Driving the Momentum

Mortgage interest rates are low today, making home-buying more affordable for the average American. The job market is slowly recovering from losses earlier this year, and families are now better prepared to take on long-term debt from home purchases.

Some of the activity is being driven by families that were ready to engage with the market earlier this year but chose to wait until the Coronavirus Pandemic had stabilized.

A Homebuilder ETF for the Current Conditions

Strong buying activity and increased demand for building permits suggest that homebuilders will see gains in the coming months. The SPDR S&P Homebuilders ETF (NYSE: XHB) is a popular growth fund that tracks homebuilders, material suppliers, and companies that sell home appliances and accessories.

The fund has almost doubled its 52-week low of $23.95, and it has momentum today. It offers a moderate dividend yield of 0.80%, but its real potential is in the growth that the home market recovery is likely to support.

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