Here’s How to Cash in on the Housing Shortage

Despite sky-high interest rates, home prices haven’t fallen much in the past two years, if at all.

Quite simply, there aren’t enough homes to go around.

Estimates put the shortage between 1.5 and 4.0 million across the U.S., with urban areas feeling it the worst.

With Congress looking for ways to boost home inventory, homebuilders are a natural beneficiary.

We scoured our TrackStar data to pull the top five homebuilder ETF searches across retail and institutional investors.

The S&P Homebuilders ETF (XHB) landed at the top of our list.

Here’s what you need to know.

Key Facts About XHB

• Net assets: $2.1 billion
• 12-month trailing yield: 0.62%
• Inception: January 31, 2006
• Expense ratio: 0.35%
• Number of holdings: 36

The XHB is probably the most well-known homebuilder ETF with over two billion dollars under management and a nearly two decade track record.

Its goal is to track the S&P Homebuilders Select Industry Index as closely as possible.

This index is a modified equal-weighted index that provides exposure to companies of all sizes.

Its top holdings include some of the country’s largest homebuilders.

Source: State Street

What many investors don’t realize is homebuilders only make up about half the ETF. 

The rest is comprised of building products and retail.

Source: State Street

Performance

The XHB is one of the top performing industry ETFs, with an average return of more than 15% annually over the past decade, better than the S&P 500.

Source: State Street

In fact, the XHB outperformed the SPY in July 16.85% to 1.21%.

Competition

There is only one other ‘homebuilder’ ETF among the top construction and homebuilding ETFs. The rest are twists on construction and manufacturing.

• iShares U.S. Home Construction ETF (ITB): Targets U.S. companies in home construction, employing a market cap-weighted index that focuses on leading players within the sector.
• First Trust RBA American Industrial Renaissance ETF (AIRR): Concentrates on small to mid-sized ndustrial companies focused on infrastructure, manufacturing, transportation and related services such as banking.
• Invesco Dynamic Building & Construction ETF (PKB): Utilizes a dynamic strategy, selecting construction firms set to thrive on sector trends and broader economic shifts, covering various capitalization sizes.
• First Trust ISE Global Engineering and Construction ETF (FLM): Follows a global index of engineering and construction firms, applying a modified market cap method to emphasize significant international infrastructure projects.

As the only other homebuilder ETF, the ITB is slightly more expensive than the XHB. However, it boasts a better performance and more assets under management.

Our Opinion 10/10 

If you’re looking to gain exposure to the homebuilding industry, the XHB is a great choice.

It comes with low fees, an outstanding performance, and plenty of liquidity, including options trading.

Plus, it holds companies beyond traditional homebuilders, giving you a well-rounded exposure to the industry.

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