Are Mortgage Rates Set to Decline? Housing ETFs to Consider
While the 30-year mortgage rate has improved and is again on a downward trajectory, it is crucial to acknowledge that they are still relatively high. The 30-year mortgage rate is faring better than it did last November, currently standing at 6.95%, for the week ending Jun 13, down from 7.76% in early November.
With increasing expectations of interest rate cuts toward the end of the year, 2024 appears poised to provide a relief to the housing market. The recent inflation data has ignited market expectations of interest rate cuts this year, with a likelihood of 55% that the Fed might lower the rate to 5-5.25% in September, according to the CME FedWatch Tool.
Upbeat Mortgage Rate Projections
Increasing market expectations of an interest rate cut this year, with some economists anticipating one to two rate cuts this year, industry experts turn optimistic about mortgage rates trending favorably throughout the year. A decline in the Federal funds rate, which typically has an indirect impact on mortgage rate, may prove advantageous for borrowers.
According to Fannie Mae, as quoted on Yahoo Finance, the 30-year mortgage rate is projected to end 2024 at 7% and will continue sliding throughout 2025, ending the year at 6.60%.
The Mortgage Bankers Association, according to Yahoo Finance, gave a more optimistic estimate for the mortgage rates, forecasting the rate to end the current year at 6.5%, falling further in 2025 to 5.9%.
According to the National Association of Realtors (NAR), as quoted on Forbes, the 30-year mortgage rate is anticipated to average around 6.7% through third-quarter 2024, ending the year at 6.5%.
The Bank of America, according to Forbes, forecasts the first interest rate cut in December 2024. Encouraged by positive inflation figures, they forecast that the 30-year mortgage rate will fall below 7% in the months to come.
ETFs in Focus
Moderating inflation levels may prove beneficial for the housing market. Falling inflation will keep mortgage rates low, making home ownership less expensive for first-time buyers.
With favorable projections for the 30-year mortgage rate and improving economic conditions in the United States painting a better picture of the housing market, below we have highlighted a few funds for investors to capitalize on the market’s optimistic outlook.
iShares U.S. Home Construction ETF (ITB)
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 44 securities. The fund has gathered an asset base of $2.86 billion and charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained 2.26% over the past month and 46.02% over the past year.
SPDR S&P Homebuilders ETF (XHB)
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index, with a basket of 34 securities. The fund has gathered an asset base of $1.78 billion and charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained 2.56% over the past month and 54.075 over the past year.
Invesco Building & Construction ETF (PKB)
Invesco Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 32 securities. The fund has amassed an asset base of $295.6 million and charges an annual fee of 0.62%.
Invesco Building & Construction ETF has gained 2.45% over the past month and 54.87% over the past year.
Hoya Capital Housing ETF (HOMZ)
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 100 securities. The fund has gathered an asset base of $42.1 million and charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained 3.01% over the past month and 28.22% over the past year.
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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
Invesco Building & Construction ETF (PKB): ETF Research Reports
Hoya Capital Housing ETF (HOMZ): ETF Research Reports
