Three Ways to View Housing Even If You Can’t Buy a Home

Markets liked the affordable housing bill that passed in the Senate this week, heralding bipartisan Congressional support for American home ownership.

Even with President Donald Trump cancelling the bill signing as he negotiates passage of other legislation, and despite 30-year mortgage rates above 6%, home builder shares were decidedly in the green Wednesday. It helps that oil prices have fallen back to earth as crude shipments resume in the Strait of Hormuz, removing a significant inflation factor for home building materials and transport. It also helps that as AI trades unwind, investors are parking in real assets. There may be companies that are “picks and shovels” among semiconductors, but housing, with backhoes and bricks, is a backbone of the economy.

The latest data Wednesday show new single-family home sales were down roughly 7% in May, with inventory rising at a double-digit pace, according to seasonally adjusted stats from the government. A silver lining: the median May sale price of $424,900 for a new abode was virtually unchanged year over year.

For many, home buying still is out of reach. Housing-related assets, however, have been on the move:

Location, Location, Location and Builders: Among the building-related names in the S&P 500, the biggest advancer Wednesday was building materials supplier Builders FirstSource (BLDR), up more than 11%. But builders that have brought subdivisions to the masses rallied too, with D.R. Horton (DHI), Lennar (LEN), and PulteGroup (PHM) each up roughly 7%. Looking at the past year’s equity performance, the three biggest decliners in the S&P 500 home builder universe are home builder Dream Finders Homes (DFH), down about 33%; Builders FirstSource, down just more than 28%, and Lennar, down nearly 17%. The biggest advancer has been Modine Manufacturing (MOD), up 177%. It provides thermal management systems and data centers are among its end markets. Rounding out the top performers in the group: HVAC equipment company AAON (AAON), up 80%, and Williams Sonoma (WSM), up 49%.

Diversified Homebuilding Equity Exposure: The State Street SPDR S&P Homebuilders ETF (XHB), rooted in the benchmark S&P Homebuilders Select Industry Index, pays a 0.55% yield and is up about 15% over the past year, while the S&P 500 is up roughly 21% and semiconductor and AI investments have turned in parabolic performances. None of the 35 positions in the fund account for more than 3.5% of assets, diluting the impact of individual builders. Included are companies that produce materials for housing such as Owens Corning (OC) and Advanced Drainage Systems (WMS) and consumer-driven businesses including housewares retailer Williams-Sonoma, DIY giants Home Depot (HD) and Lowe’s (LOW), and heating-and-cooling companies Trane Technologies (TT), Lennox International (LII), and Carrier Global (CARR).

Know Your Options: The XHB chart shows a notable breakout in the ETF price above the area near $111, which marks old highs from late April as well as a pause in the recent rally last week. Price has now made a strong push above that level but has again halted near old highs around 115.50 from mid-January. The general pattern is a rising wedge-type shape beginning with the 52-week lows of 93.57 on May 19, which now makes for a +22% rally as of yesterday’s close. Price now finds itself in a volume node according to the yearly Volume Profile study, which is thickest from 113 to 116 after heavy trading yesterday. The options market also shows some potentially important information through the possible expected move for the Jul.17 monthly expiration, which projects a range of about +/-7.6 (6.7%). This gives a high near 122, which suggests traders are not looking for new highs above the 52-week peak of 123.13 on Feb. 12 in the shorter term. 

Rick Ducat contributed to this article

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