Leveraged Bet on Homebuilders Is Surging in Hot Housing Market
(Bloomberg) -- The historically-tight American housing market is not yet done making winners out of investors placing leveraged bets on the prospects of homebuilders.
Down a month ago by almost 40% from an all-time high set in May, the Direxion Daily Homebuilders & Supplies Bull 3X Shares ETF (NAIL) has surged 38% since. It’s still lower by more than 16% from its record, but remains up 100% in 2021. Homebuilders from D.R. Horton Inc. to Pulte Group Inc. have been able to pass on rising materials costs as demand among home buyers remains robust in a market starved for new construction.
Homebuilders -- investor darlings throughout the pandemic as Americans sought roomier homes with extra office and study space -- tumbled in mid-May on concern that inflation would force a rate hike. For now, the Federal Reserve remains firmly on hold and home demand has surged as buyers take advantage of low mortgage rates and builders get a reprieve with prices for materials from lumber to copper retreating from records.
“Home builders started the year as market darlings, but recently took a back seat as investors became concerned about rising prices and building costs,” said Dave Mazza, head of product at Direxion. “Over the last month, buyers stepped back in seeing a contrarian opportunity.”
Interest in Direxion’s offering for home construction stocks has only ticked higher, further validating how hot the market continues to be since pandemic forces has enticed owners to put their homes up for sale.
Mazza said “investors are staying bullish on the housing market as rates remain extremely low and demographics point to solid demand.” And volume in the firm’s NAIL ETF “has remained strong as traders looked to take advantage of a bounce back through a leveraged fund,” he added.
Propped up by attractive rates and the work-from-anywhere boom, the home buying industry hasn’t been this competitive in years. The increased demand has only made inventory tick lower, thus sending home valuations to their highest in recent time.
“Business is booming across the board there,” said Ben Johnson, Morningstar’s global director of ETF research. “People are building new homes, they are buying old homes and putting a fresh coat of paint on them, you name it,” he added.
©2021 Bloomberg L.P.