Mortgage Rates to Fall? Housing ETFs in Focus as Outlook Seems Bright

March 2, 2024

3 minutes read

The 30-year mortgage rates are faring better than they did last November. With increasing expectations of a further fall in interest rates, 2024 appears poised to provide relief to the housing market. While the rates have improved, it is crucial to acknowledge that they are still relatively high.

With the Fed keeping the interest rates unchanged to lower the inflation levels and estimates of rate cuts in 2024, industry experts remain optimistic about falling mortgage rates.

Upbeat Mortgage Rate Projections

Per market estimates, the Fed might initiate interest rate adjustments by the second half of 2024. According to the CME FedWatch Tool, there is a 45% chance that the Fed might bring down the rate to 5-5.25%, along with a 31.7% chance that the rate might be reduced to 4.75-5% by the end of July.

A decline in the Federal funds rate, which typically has an indirect impact on mortgage rates, may prove advantageous for borrowers. According to the National Association of Realtors’ chief economist, Lawrence Yun, as quoted on Forbes, mortgage rates are expected between 6% and 7% for the majority of the year.

The Mortgage Bankers Association gave a more optimistic estimate for the mortgage rates, forecasting the rate to end the current year at 6.1%, falling further in 2025 to reach 5.5%.

Bright MLS’s chief economist, Dr. Lisa Sturtevant, anticipates the rates to reach 6.2% by the end of fourth quarter 2024. Fannie Mae Housing expects the rate to hit 6.5% by the end of fourth-quarter 2024.

Goldman Sachs maintained an optimistic outlook as well, estimating the rates to reach 6.3% toward the end of 2024, assisting in making housing more affordable.

According to Forbes, optimism regarding mortgage rates surged in the latest Fannie Mae Home Purchase Sentiment Index, with a record-high 36% of surveyed consumers anticipating further declines in mortgage rates over the next 12 months.

ETFs in Focus

Improving economic conditions in the United States paints a better picture of the housing market. Moderating inflation levels and a robust labor market may prove beneficial for the housing market.Falling inflation will keep mortgage rates low, making home ownership less expensive for first-time buyers.

With the housing market expected to rebound in the second half of 2024, below we have highlighted a few funds for investors to capitalize on the market’s resurgence.

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 46 securities. The fund has amassed an asset base of $2.78 billion and charges an annual fee of 0.40%.

iShares U.S. Home Construction ETF has gained 36.06% in the past three months and 44.67% over the past year.

SPDR S&P Homebuilders ETF (XHB)

SPDR S&P Homebuilders seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 35 securities. The fund has gathered an asset base of $1.74 billion and charges an annual fee of 0.35%.

SPDR S&P Homebuilders has gained 31.27% in the past three months and 36.32% 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 40 securities. The fund has gathered an asset base of $339.7 million and charges an annual fee of 0.62%.

Invesco Building & Construction ETF has gained 29.78% in the past three months and 37.64% 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 $39.4 million and charges an annual fee of 0.30%.

Hoya Capital Housing ETF has gained 24.21% in the past three months and 14.71% over the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report