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The Fund seeks to replicate as closely as possible, before expenses, the performance of an index derived from the homebuilding segment of a U.S. total market composite index. The Fund employs a passively managed strategy designed to track the total return performance of the S&P Homebuilders Select Industry Index.
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Aarthi Swaminathan
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November’s sharp pullback in 30-year fixed mortgage rates may not last if the labor market remains strong, said Mark Palim, deputy chief economist at Fannie Mae.
Palim was speaking to the robust jobs report released on Friday, showing the U.S. added 199,000 jobs in November and that wages rose, albeit with the figures somewhat inflated by the return of striking workers from the auto industry and from Hollywood.
Homebuyers can benefit from a robust labor market and the near 80 basis point decline in mortgage rates since the end of October, Palim said. But if the “labor markets remain this strong, we believe the pace of mortgage rate declines will likely not continue in the near term or may partially reverse,” he said in a statement.
The benchmark 30-year fixed mortgage rate was edging down to 7.05% on Friday, after surging to nearly 8% in October, according to Mortgage Daily News.
Optimism around the potential for falling mortgage costs to thaw home sales helped lift shares of Toll Brothers Inc.,
TOL,
and a slew of other homebuilders tracked by the SPDR S&P Homebuilders ETF,
XH,
to record highs earlier this week, even while investors in some homebuilder bonds have been sellers in recent weeks.
Yields on 10-year
BX:TMUBMUSD10Y
and 30-year Treasury notes
BX:TMUBMUSD30Y
were up sharply Friday, to about 4.23% and 4.32%, respectively, but still below the highs of about 5% in October. The surge in long-term borrowing costs was stoked by tough talk by Federal Reserve officials about the need to keep rates higher for longer to bring inflation down to a 2% annual target.
Read: Solid job growth, sharp wage gains sends Treasury yields up by the most in months
U.S. stocks were up Friday afternoon, shaking off earlier weakness following the jobs report. The Dow Jones Industrial Average
DJIA
was 0.2% higher, further narrowing the gap between its last record close set two years ago, the S&P 500 index
SPX
and the Nasdaq Composite Index
COMP
also were up 0.2%, according to FactSet data.
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The numbers: For the first time in nearly a year, home builders are upbeat about the housing market outlook.
The shortage of previously-owned sales is helping to buoy builders’ confidence.
With mortgage rates above 6%, many homeowners find little incentive to sell—nearly 92% have an outstanding mortgage with a rate below 6%, according to a recent survey conducted by Redfin
RDFN,
a brokerage and real estate listings company. And 23.5% of homeowners have a mortgage rate of less than 3%. Consequently, the number of new home listings has dropped by 22%, as compared with the same period a year ago, according to a Realtor.com housing trends report.
In turn, home builders are feeling good about their business. The National Association of Home Builders’ (NAHB) monthly confidence index rose 5 points to 55 in June, the trade group said Monday.
This is the sixth month in a row that sentiment has improved among builders. It is also the first time in 11 months that builder confidence has moved into positive territory of above 50.
The June reading of 55 was the strongest since July 2022. A year ago, the index stood at 67.
Key details: Builders were starting to pull back on sales incentives. The share of builders cutting prices to boost sales has dropped to 25% in June, from a peak of 36% in November 2022.
The typical builder was cutting prices by 7% in June, the NAHB said.
The three gauges that underpin the overall builder-confidence index were up.
Big picture: Due to pandemic-era monetary policies that depressed mortgage rates, the home buyers, real-estate agents, mortgage brokers and the rest of the industry are stuck trying to find solutions to a major supply crunch of homes.
Builders seem to be one of the few participants who have benefited from the supply crunch, given the nature of their business of new construction. The homebuilder ETF,
XHB,
is up 25% year-to-date.
What the NAHB said: “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” Robert Dietz, chief economist at the NAHB, wrote.
And with the “Federal Reserve nearing the end of its tightening cycle,” the statement read, it’s “good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”
Markets were closed on Monday in observance of the Juneteenth holiday.
Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.
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The Fund seeks to replicate as closely as possible, before expenses, the performance of an index derived from the homebuilding segment of a U.S. total market composite index. The Fund employs a passively managed strategy designed to track the total return performance of the S&P Homebuilders Select Industry Index.
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