When interest rates start coming down in the U.S. is debatable. Whether it happens this year or next year is the big question. And with the economy growing at a rate of 2.8% for the second quarter, surpassing expectations, a rate cut may be less likely this year.
But now could be a good time to put money into investments which could rally once rates start coming down. If you wait until they actually come down, you may end up missing a good chunk of the rally. One sector of the market which could benefit from a drop in interest rates is housing. Demand for new homes could accelerate as interest rates come down, making them more affordable.
One exchange-traded fund (ETF) that gives investors great exposure to stocks involved in the housing market is the SPDR S&P Homebuilders ETF (NYSEArca:XHB). The fund gives investors access to a wide range of housing stocks, including companies which are involved with building products, home improvement, household appliances, and other housing-related categories. These are all stocks which could benefit from a heightened demand for new homes as it could trigger a ripple effect for the entire sector.
There are 35 holdings in the fund but no stock makes up for even 4% of the portfolio’s overall weight, giving investors some good diversification and not too much exposure to a single holding. The top three stocks in the fund as of now are D.R. Horton (NYSE:DHI), Tri Pointe Homes (NYSE:TPH), and KB Home (NYSE:KBH).
Year to date, the SPDR S&P Homebuilders ETF is up 23% and over the past five years it has climbed 180%.
