You've successfully subscribed to Insights
Great! Next, complete checkout for full access to Insights
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.
Success! Your billing info is updated.
Billing info update failed.

U.S. Home Construction ETF Breaks Out

Homebuilder stocks are on πŸ”₯ This iShares ETF is a low-cost way to jump on this trend. Plus, data from D.R. Horton.

Caleb Dismuke

The iShares U.S. Home Construction ETF ($ITB) is up 27% YTD, compared to a 6% gain for the S&P 500.

What's going on? On Monday, the NAHB (National Association of Home Builders) reported that builder sentiment jumped 6 points to 78 in August, the highest level 35-years.

πŸ‘‰ Any reading above 50 indicates positive sentiment.

NAHB Chairman Chuck Fowke:

"The demand for new single-family homes continues to be strong, as low-interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs."

"The V-shaped recovery for housing has produced a staggering increase for lumber prices, which have more than doubled since mid-April. Such cost increases could dampen momentum in the housing market this fall, despite historically low-interest rates."

Driving the trend is a shortage of existing homes, low interest rates, and people flocking to suburbs.

Read also: Freddie Mac's research paper on the causes of the housing shortage.

What's the chart telling us?

  • In July, the price broke above the previous resistance level at $50.
  • To maintain upside momentum, the $50 level should hold on a retest.

$ITB top ten holdings:

Company % Gain/Loss YTD
D.R. Horton ($DHI) 42.07%
Lennar ($LEN) 41.14%
NVR ($NVR) 9.83%
Putlegroup ($PHM) 22.24%
Lowe's Companies ($LOW) 34.19%
Sherwin-Williams ($SHW) 15.97%
Home Depot ($HD) 32.16%
Topbuild ($BLD) 53.51%
Masco ($MAS) 25.62%
Toll Brothers ($TOL) 10.35%

Note: Their are some non-home builder companies in the top ten, like Sherwin-Williams (paint), Home Depot (retail), and Topbuild (installation).

D.R. Horton is the best-performing homebuilder YTD at +42.07%.

Here are a few slides from its Q3 2020 investor presentation.

Market share dominance:

Geographic diversification:

Product offerings and price points:

Return on inventory (ROI):

Book value per share:

What they do with cash flow:

Chart: D.R. Horton ($DHI)

Supply and demand levels:

  • The trend is higher.
  • For upside momentum to continue, price should hold on a retest of the trendline (red arrow).