The Best ETF to Play the Housing Shortage

In 2008, we had too many houses.

Now, there’s not enough.

For over a decade, housing supply outweighed demand. So, homebuilders had little incentive to build excess inventory, especially after the beating they took during the Great Recession.

But the tides have turned.

Moody’s estimates there’s a gap of nearly 2 million homes.

Naturally, that’s a boon for homebuilders who now have a mile-long backlogs.

So what’s the best way to play this rebound?

Our TrackStar data suggests financial pros prefer the iShares U.S. Home Construction ETF (ITB).

It ranked #1 in search volume for homebuilder ETFs, barely edging out the SPDR S&P Homebuilder ETF (XHB).

We agree with the pros here, and will explain why we prefer the ITB over all other housing-related ETFs.

Key Facts About ITB

• Net assets: $2.29 billion
• 12-month trailing yield: 0.49%
• Inception: May 1, 2006
• Expense ratio: 0.40%
• Number of holdings: 46

There are less than 20 publicly traded homebuilder stocks in the U.S.

So, the ITB, and similar ETFs, hold related stocks like Home Depot, Whirlpool, and the like.

The ITB is more of a market-weighted pure play on housing construction than any other ETF.

Its top 4 stocks, all homebuilders, represent over 40% of the total weighting.

Source: iShares

The ETF has excellent liquidity with regular weekly option expirations.

ITB also comes with a low expense ratio and a small, but regular dividend.

Source: iShares

Performance

The outstanding feature of the ITB is the ETF’s performance.

Over the last five years, the ITB gained over 200%, making it the top unleveraged performer of the homebuilder ETFs.

Source: iShares

Competition

Our list of homebuilder and related ETFs includes a few different ways to gain exposure to the sector.

• SPDR S&P Homebuilders ETF (XHB): This equal-weighted ETF holds both homebuilders and related stocks like Home Depot.
• Consumer Discretionary Select Sector SPDR Fund (XLY): While consumer discretionary is a broader category, it includes many of the homebuilder and related stocks in its holdings.
• Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL): NAIL is the one leveraged ETF on our list offering 300% exposure to the daily movements of the Dow Jones U.S. Select Home Construction Index.
• Invesco Dynamic Building & Construction ETF (PKB): While as evenly distributed as the XHB, the PKB is far less concentrated than the ITB.

As we often see, a more concentrated position yields better results over time.

However, this is one instance where the leveraged ETF actually did the best.

Our Opinion 10/10 

There is no better ETF to gain exposure to homebuilders than the ITB. 

We prefer it’s market-weighted approach that focuses on the construction and less on suppliers and related companies.

With a reasonable expense ratio and moderate yield, this ETF is one you can add to your long-term portfolio to gain exposure without company-specific risk.