Skip to Content
ETF Specialist

Homebuilders and the Fed: An ETF for Investors Seeking Housing-Sector Exposure

With no tapering imminent, housing stocks rallied on Wednesday. For those who see more upside from here, this ETF offers the purest exposure to U.S. housing stocks.

Mentioned: , , , , , ,

Following the surprise news that the Federal Reserve will continue with its easy-money policy and not taper its bond-buying program, interest rates fell across the board on Wednesday, with rates reversing some of their recent rises and the 30-year mortgage rate settling in around 4.5%, or 10 basis points less than it had been a week earlier. Since May, the 30-year mortgage rate has risen more than 100 basis points, and mortgage rates still are much higher from their all-time lows earlier this year. Still, Wednesday's news from the Fed was great news for the equity markets, with the S&P 500 Index rising 1.2% on Wednesday. And it was better news still for the housing sector, with the housing-oriented exchange-traded fund  iShares U.S. Home Construction ETF (ITB) rallying close to 5% on Wednesday. That was a nice lift for the housing sector, which surged in 2012 but has been under pressure in recent months. Homebuilders could move further in either direction given that several important indicators of the health of the housing market are due out next week, including the latest read on the Case-Shiller index and several earnings reports from publicly traded homebuilders.

Investors who believe that more good news is ahead for homebuilders might consider a sector-specific ETF devoted to the homebuilding industry. ITB has the greatest exposure to the housing sector. Because ITB is a concentrated bet on a very narrow segment of the market, we view this fund as a tactical investment, suitable only as a complementary satellite holding in a diversified portfolio. Investors should take note that the housing sector is highly cyclical and sensitive to employment and credit conditions.

Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.