Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA


Read The Full Article on Seeking Alpha!

  • Homebuilders are the next stop on our “house tour” of real estate ETFs. XHB and ITB are two options for investors seeking focused exposure to the US residential construction sector.

  • While these two ETFs are driven by similar economic factors and are essentially “substitutes” over a longer time horizon, the portfolio composition of these ETFs is quite different.

  • ITB offers investors more pure-play exposure to homebuilders, while XHB offers relatively more diversified exposure to the broader residential construction industry including homebuilding suppliers and materials producers.

  • By most metrics, housing markets remain significantly undersupplied after a dearth of new construction over the last 30 years. Operationally-efficient builders have grown significant market share since the recession.

  • Focused and levered to the highly-cyclical residential construction sector, these ETFs represent a relatively small slice of the US housing industry and are generally not for the faint of heart.


  • Alex Pettee, CFA


Read Full Article on Seeking Alpha!

  • Among the most popular real estate “sub-sector” ETF, the iShares Residential Real Estate Capped ETF offers focused exposure to 44 of the largest rental landlords in the United States.

  • “Renter Nation” has been very good to REZ investors. Residential REITs have outperformed the broader sector over nearly every recent measurement period.

  • This run of outperformance is no coincidence. The effects of the historic underinvestment in new home construction continues to put upward pressure on rent growth and border housing inflation.

  • The mounting housing shortage is amplified by a large demographic wave of young millennials hitting the housing market. Rent growth was impressive in 2018 despite record apartment supply growth.

  • There are some idiosyncrasies that investors should be aware of. The ETF is quite “top-heavy” and invests in property types not typically associated with “residential”, including hospitals and medical office buildings.


  • Alex Pettee, CFA

Read our Real Estate Weekly Review on SeekingAlpha!


  • What shutdown? The rally continued for US equities as the major indices notched their fourth straight week of gains. The S&P 500 has jumped 14% since bottoming in December.

  • Real estate and housing-related equities continue to lead the rally in 2019. REITs are up more than 6% this year, while the Housing Industry Index is up nearly 9%.

  • Housing starts and new home sales data continues to be delayed by the shutdown. Indications are that single-family home sales significantly weakened in the final quarter of 2018.

  • After a dismal end to 2018, housing data is showing signs of life. The MBA Purchase Index, a leading indicator of home sales, climbed to the highest level since 2010.

  • Corroborating the sensitivity of single-family housing demand to mortgage rates, homebuilder sentiment improved in December despite volatile financial markets. Rates, however, remain at the upper-end of the post-recession range.


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