Despite Rising Rates, New Home Construction Improves

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The Federal Reserve is expected to continue raising interest rates through the rest of 2022, but that doesn’t appear to be affecting new home construction so far. The U.S. Census Bureau reported positive numbers for new home construction.

“U.S. home builders started construction on homes at a seasonally-adjusted annual rate of roughly 1.79 million in March, representing a 0.3% increase from the upwardly-revised figures for the previous month, the U.S. Census Bureau reported Tuesday,” MarketWatch reports. “Compared with March 2021, housing starts were up nearly 4%.”

Of course, the big question is how rising interest rates will continue to affect the housing market. The hope for bullish traders is that low supply will oust the effect of rising rates.

“Over the past two years, burgeoning demand among home buyers has met with a shortage of some 5.8 million homes according to estimates from Realtor.com. That’s been a recipe for rising home prices,” MarketWatch explains.

“Home builders now face some tough decisions,” MarketWatch adds. “Rising rates are likely to reduce home-buyer demand, but the short supply of homes for sale means that competition will likely remain elevated. The under-supply of homes nationally gives builders plenty of runway to work with — but memories of the Great Recession linger, and some builders may be hesitant about overcommitting themselves as the market shifts.”

Trading Strength in Homebuilders

Should homebuilder data continue to be positive, traders can look for leveraged opportunities in the Daily Homebuilders & Supplies Bull 3X Shares (NAIL) ETF. The fund is up 7% in the last five days.

NAIL seeks daily investment results of 300% of the daily performance of the Dow Jones U.S. Select Home Construction Index. The index measures U.S. companies in the home construction sector that provide a wide range of products and services related to homebuilding, including home construction and producers, sellers, and suppliers of building materials, furnishings, and fixtures.