Homebuilder ETFs Decline as US Home Sales Dip for a Record Year

Lack of activity in the housing market could change soon as prices cool.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

The deep freeze in the U.S. housing market continued in January as existing home sales dipped 0.7%, a record 12th-straight monthly decline, according to the latest data from the National Association of Realtors. 

That put sales at an annual pace of four million units, the lowest level since 2010, when the housing market was still reeling from the early-2000s bubble.  

Such a low level of housing sales suggests that potential home buyers and home sellers are reluctant to make transactions in the current environment.  

A combination of high home prices and high mortgage rates are keeping buyers on the sidelines, while would-be sellers are reluctant to part ways with homes financed at much lower interest rates. 

That could soon change.  

“Home sales are bottoming out,” NAR Chief Economist Lawrence Yun, said on Monday.  

Indeed, January’s 0.7% monthly decline was the smallest of the current 12-month losing streak, and home prices have begun to roll over, something that could encourage buyers to jump into the market. 

Yun noted that “homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.” 
He also said that buyers are beginning to have “better negotiating power.” 
Nationally, existing homes sold in January had an average price of $359,000, up 1.3% from a year ago. At the same time, data in certain cities shows prices have fallen significantly. 

Prices for single-family homes in San Francisco, for instance, were down 6.1% year-over-year in the fourth quarter, according to data from NAR. From their peak price in Q2’22, they’re down a whopping 21%. 

Meanwhile, home prices in Boise dropped 3.4% year-over-year in Q4, in Boulder they fell by 2%, and and in Austin they were down by 1.3%.  

All else equal, lower home prices should increase demand and help put an end to the home sales losing streak—eventually.  

Homebuilder ETFs  

On  Tuesday, the two biggest homebuilder ETFs, the SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB) were lower by around 4% each before market close.  

The two funds are slightly underperforming the S&P 500 since the end of 2021, with losses of 21% and 19%, respectively, versus 14% for the SPDR S&P 500 ETF Trust (SPY)

While the housing market is in the midst of one of its worst busts ever in terms of sales, that’s more a reflection of the sudden surge in interest rates than the underlying supply and demand dynamics of the market.  

While demand is anemic today, it should bounce back once rates stabilize or even come down. 

Meanwhile, supply remains historically low, necessitating the need for new housing units from developers. 

E-mail Sumit at  [email protected] or follow him on Twitter @sumitroy2     

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.