- Is a broader 'proxy' for investing in the housing market - or a narrower one - better? -
The rent is too damn high and there aren't any houses to buy, but all is not lost. Thanks to a new exchange-traded fund, investors may soon be able to profit from the housing shortage crisis.
HOMZ , which will trade on the New York Stock Exchange starting Wednesday, tracks an index created by its parent company, Hoya Capital. The index is "designed to be the new barometer for the U.S. Housing Sector," Hoya says in its promotional materials.
There are other ETFs tracking housing and some mutual funds, as well. But Hoya President Alex Pettee calls HOMZ the first "to track the entire housing market," by including stocks of companies ranging from home builders to data services to real estate investment trusts.
The Housing 100 index tracks spending on housing according to its contributions to GDP spending. Hoya selected companies that "accurately represented this spending," Pettee said, emphasizing not just homebuilding stalwarts like Lennar and D.R. Horton Inc., but "companies that are transforming real estate" like CoreLogic and Zillow. "The ETF is a proxy on the housing market."
More specifically, though, these are also companies that are poised to benefit from the lingering housing shortage, which has worsened into what most analysts consider a crisis. Economists at Freddie Mac have estimated that the U.S. has a shortfall of several million homes, and as more new households are formed, that will likely only intensify.
"The ETF graveyard is littered with interesting-sounding strategies." Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA
"This is taking the thematic investing theme to the next level," said Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. The two current housing ETF kings, SPDR S&P Homebuilders and the iShares U.S. Home Construction ETF, each have a lot more than homebuilder stocks in them, Rosenbluth noted.
But HOMZ is much broader, and resembles many newer ETFs that are pivoting off an idea rather than making a pure industry play. One consequence: it will almost certainly be far less volatile than the homebuilder biggies, thanks to its inclusion of REIT stocks, Rosenbluth pointed out.
"I think the theme makes sense," Rosenbluth said. "Whether the investment case backs it up, or if investors are interested in a broader approach versus the existing home builder products or a narrower approach to playing housing, I'm not sure. The ETF graveyard is littered with interesting-sounding strategies."
Still, Pettee argues that the housing supply shortage is likely to have clear investment impacts. It will help boost rental rates, which should benefit rental operators like AvalonBay Communities, Inc. and American Homes 4 Rent.
It will keep demand elevated for new homes built by Lennar and Masco.
Consumers will continue to use Zillow to look for homes and Fidelity National Financial for "back-office" needs like title insurance and mortgage servicing.
And as the housing stock ages, Americans will have to invest not just in new curtains at Wayfair, but new water heaters and roofs at Lowes and Home Depot.