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U.S. Home Construction ETF Breaks Out

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

Caleb Dismuke
Caleb Dismuke
2 min read

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.

👉 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).
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Caleb Dismuke

Enjoy writing, cooking, and brainstorming business ideas.