Alternative Investments/Real Estate: Mortgage Rates Set Another Record Low; Real Estate ETFs Could Benefit

Low interest rates, millennial demand, and the structural shift towards live-work residences are all bullish.

The average interest rate for a 30-year fixed-rate mortgage with conforming loan balances of up to $510,400 slipped to 3.01% from 3.05% last week, CNBC reports.

The low rates spurred demand for refinancing, with applications up 8% for the week and 50% higher than a year ago. However, applications for a mortgage to buy a home have been grinding marginally lower, primarily at the lower/entry-level end of the market. This is due to supply issues, as well as affordability given the economic difficulties due to the pandemic.

However, there was strong activity in the higher end of the market, evidenced by the increase in average loan amount to a record value of $371,500.

Bullish factors

Apart from the low-interest mortgage rates, the housing market is enjoying higher demand for homeownership from millennials. During the period from January through to August 29, 2020, millennials accounted for 50%, the largest share, of homebuyers. (CoreLogic data quoted by ETF Trends)

The pandemic has also triggered a structural churn in home buying patterns. More people want to give up city homes for living in the suburbs (or, exurbs). Again, people are looking for homes that can double up as live-work-homeschool spaces.

These issues come on top of over a decade of under-building of homes since the housing crisis. According to Chief Economist Mark Fleming of First American Financial Corporation, new housing has failed to keep up with the demand from new households.

“The housing deficit is growing when in a time of the pandemic, ‘home’ is the ultimate stay-at-home ‘stock,’” Fleming said to Business Insider.

The deficit is reflecting in prices. Data from the National Association of Realtors showed median existing-home prices in July rose above $300,000 for the first time ever.

Hoya Capital Housing ETF

Real estate centered ETFs like the Hoya Capital Housing ETF (NYSEARCA: HOMZ) are benefiting from the situation.

The ETF is currently trading at $30.88 and has reclaimed its pre-COVID-high.


HOMZ aims to replicate the performance of the Hoya Capital Housing 100 Index, a rules-based index designed to track the 100 companies that collectively represent the performance of the US Housing Industry.

These are companies that would benefit from rising rents, appreciating home values, and a persistent housing shortage. As well, record-low mortgage rates.

Related Story:   Homebuilder ETFs In A Bull Grip                                                

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