Trends in the US Housing Market
Our research team at Hoya Capital Real Estate is pleased to provide you with our insights into recent trends in the US Housing Market.
The domestic-focused residential real estate sector has provided relative shelter amid the recent period of market turbulence. For the US housing sector, the story of 2019 continues to center around the sharp pullback of the 30-year fixed mortgage rate, which has stimulated renewed activity in the single family housing sector. New Home Sales recorded it’s strongest month in nearly twelve years in June on a seasonally-adjusted annualized basis and was higher by 4.3% compared with a year ago in July. 1 Existing Home Sales for July, meanwhile, recorded its first year-over-year increase in sales since late 2017. 2 The Mortgage Bankers Association Builder Application Survey data for July showed mortgage applications for new home purchases increased 31.2% compared to a year ago. 3

While the concurrent and forward-looking data series indicate that housing demand has indeed been stimulated by lower mortgage rates, home construction activity has been slower to respond to the demand-side tailwinds. Total housing starts in July increased by 0.6% from the same month last year on a seasonally-adjusted annualized basis. 4 Meanwhile, total residential construction spending fell by 8.0% in June from the same period last year. 5 Ultimately, the 2010s will likely be remembered as a decade of significant under-building of housing. On a rolling 10-year average, residential fixed investment as a share of GDP is near the lowest level since the end of WWII, a function of underinvestment in both new home construction and existing home repair and renovation activity. 6  Household formations outpaced new housing starts by more than 100,000 in 2018, pushing the vacancy rate for both owner-occupied and renter-occupied homes to near-multi-decade lows. 7
The effects this housing shortage, we believe, has been a persistent rise in overall housing costs, manifesting in rising rents and higher home values. Since the beginning of 2012, housing costs (CPI: Shelter) have outpaced the broader rate of inflation (CPI: All Items) by an average of 1.3% per year, fueled by a persistent supply shortage in the most in-demand US housing markets. 8 Over the last three decades, structural impediments to supply growth, aggravated by the dramatic dislocations during the housing crisis, significantly slowed the rate of housing starts per capita. Given the recent moderation in housing starts, combined with favorable demographics for household formation growth, we believe that the broader theme of rising housing costs will persist well into the next decade.

Harvard University's Joint Center for Housing Studies (JCHS) projects that the number of households in their mid-30s to mid-40s will increase by 2.9 million over the decade, fueled by the maturing millennial generation, which is largest generation in American history. 9 Powered by a record streak of over 100 months of job growth, 10 more than 2.2 million new households were created in 2018, the strongest rate of household formation growth since 1982. 11 While the forecasted distribution of households between renting and owning remains uncertain and driven by near-term economic conditions and housing policy, the combination of historically low housing supply and strong demographic-driven demand has provided a favorable macroeconomic backdrop for companies involved in the US housing industry over the next decade.
Introducing HOMZ - Hoya Capital Housing ETF
 There's more to real estate than REITs. And there's more to Housing than Homebuilders. HOMZ (pronounced Homes) offers exposure across the entire US Housing Industry, tracking the Hoya Capital Housing 100 Index , a rules-based index designed to capture total spending on housing and housing-related services.

We believe that HOMZ captures the "thematic growth" trends associated with rising housing costs, a recovery in new home construction, the realization of deferred home improvement spending, and the effects of the mounting housing shortage.
HOMZ was created to address a core investment need. The US Housing Market is one of the largest - and arguably the most important - asset class in the world. Housing is the single largest annual expenditure for the average American household, accounting for a third of average annual spending according to the US Bureau of Labor Statistics. 12

Considering the importance of housing within a typical American's spending allocation, we believe that many investors lack adequate exposure to residential real estate. As of July 2019, real estate comprised just 3.1% of the S&P 500. 13 We believe that financial advisors will potentially find HOMZ to be a compelling solution for their clients who are impacted by the macroeconomic trends affecting the US Housing Sector including rising rents and housing costs, yet may lack the adequate exposure within their current asset allocation.
HOMZ breaks through the traditional classification lines in the real estate and homebuilding categories, investing in all segments of the residential real estate industry while avoiding the potentially at-risk real estate sectors like malls and shopping centers. We believe that HOMZ provides a modernized and highly intuitive evolution in the real estate and homebuilding categories.

The index is divided into four US Housing Industry Business Segments, each weighted based on their relative contribution to US Gross Domestic Product. In addition to offering exposure to companies involved in home building, home improvement, and home rental operations, HOMZ also offers representative exposure to transformative sectors like real estate services and technology.
HOMZ has received nice coverage from the press and analysts including being discussed in MarketWatch, Forbes, Financial Advisor Magazine, and being mentioned in ETF.com's recent article titled, " Most Interesting ETF Launches This Year ." Additionally, we were recently featured on Bloomberg's ETF IQ to discuss long-term trends in the US housing industry.
Please feel free to reach out with any questions.

Alex Pettee, CFA
President, Director of Research & ETF
(833) HOYA-CAP
Housing As A Percent of Total Spending
United States Bureau of Labor Statistics. Consumer Expenditure Survey, 2017.

Breakdown of GDP Spending on Housing
US Census Bureau. Gross Domestic Product, 2019. Hoya Capital Real Estate Estimates.
Recent Press Coverage of HOMZ
About Hoya Capital Real Estate
Hoya Capital Real Estate is a research-focused Registered Investment Advisor based in Rowayton, Connecticut. Hoya Capital Real Estate was founded with the mission of making real estate more accessible to all investors. Hoya Capital is among the most widely-read and cited publishers of real estate commentary and research. In addition to advising HOMZ, w e offer a full range of investment and portfolio management services including our Real Estate Robo-Advisor   strategy, and our fully Customized Real Estate Portfolio strategy, all designed to meet your investment objectives and goals. For more information please visit  www.HoyaCapital.com or email Invest@HoyaCapital.com .
Investing involves risks. Principal loss is possible. The Fund is not actively managed. The Fund’s investments will be concentrated in housing and real estate-related industries. Investments in real estate companies and the construction and housing industry involve unique risks. Real estate companies, including REITs, may have limited financial resources, may trade less frequently and in limited volume, and may be more volatile than other securities. Many factors may affect real estate values, including the availability of mortgages and changes in interest rates. Real estate companies are also subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. The construction and housing industry can be significantly affected by the real estate markets. Compared to large cap companies, small and mid-capitalizations companies may be less stable and their securities may be more volatile and less liquid. As with all ETFs, Shares may be bought and sold in the secondary market at market prices and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Although it is expected that the market price of Shares will approximate the Fund’s NAV, there may be times when the market price of Shares is more than the NAV intra-day (premium) or less than the NAV intra-day (discount) due to supply and demand of Shares or during periods of market volatility. 

*An investment in the fund is subject to fees and expenses.  Distributions are not guaranteed. Diversification does not assure a profit nor protect against loss in a declining market. 

1 US Census Bureau. August 23, 2019. Press Release. https://www.census.gov/construction/nrs/pdf/newressales.pdf. New Home Sales is an economic indicator which records sales of newly constructed residences in the United States of America.
2 National Association of Realtors. August 21, 2019. Press Release. https://www.nar.realtor/newsroom/existing-home-sales-climb-2-5-in-july. Existing home sales, released by the National Association of Realtors, reflects the number of homes that have previously been constructed and are now being resold. 
3 Mortgage Bankers Association. August 15, 2019. Press Release. https://www.mba.org/2019-press-releases/august/july-new-home-purchase-mortgage-applications-increased-312-percent. The Builder Application Survey provides timely and detailed monthly metrics on loan application activity received directly from home builders for new single-family properties. This data provides a gauge of new home sales activity in the United States.
4 US Census Bureau. August 16, 2019. Press Release. https://www.census.gov/construction/nrc/pdf/newresconst.pdf. Housing starts are the number of new residential construction projects that have begun during any particular month.
5 US Census Bureau. August 1, 2019. Press Release. https://www.census.gov/construction/c30/pdf/release.pdf. Construction spending is an economic indicator that measures the amount ofspending toward new construction.
6 US Bureau of Economic Analysis. July 26, 2019. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Residential Fixed Investment consists of purchases of residential structures by private businesses, by nonprofit institutions, and by governments in the United States. 
7 US Census Bureau. Housing Vacancies and Homeownership. July 25, 2019. Press Release. https://www.census.gov/housing/hvs/files/currenthvspress.pdf. The Housing Vacancies and Homeownership provides current information on the rental and homeowner vacancy rates, and characteristics of units available for occupancy.
8 US Bureau of Labor Statistics. August 13, 2019. Press Release. https://www.bls.gov/news.release/pdf/cpi.pdf. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
9 "The State of the Nation's Housing." Joint Center for Housing Studies of Harvard University. 2019. https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_State_of_the_Nations_Housing_2019.pdf.
10 Bureau of Labor Statistics. All Employees: Total Nonfarm Payrolls. August 2019. https://www.bls.gov.
11 US Census Bureau. Housing Vacancies and Homeownership. July 25, 2019. Press Release. https://www.census.gov/housing/hvs/files/currenthvspress.pdf. The Housing Vacancies and Homeownership provides current information on the rental and homeowner vacancy rates, and characteristics of units available for occupancy.
12 Bureau of Labor Statistics. Consumer Expenditure Survey, 2017. https://www.bls.gov/news.release/cesan.nr0.htm.
13 S&P Dow Jones Indices. S&P 500 Index Fact Sheet. https://us.spindices.com/indices/equity/sp-500. The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. It represents the stock market's performance by reporting the risks and returns of the biggest companies.

The Hoya Capital Housing ETF seeks to track the performance, before fees and expenses, of the Hoya Capital Housing 100 Index. The Index is a rules-based index designed to track the 100 companies that collectively represent the performance of the US Housing Industry, divided into four residential real estate-related business segments: 1) Home Ownership and Rental Operations; 2) Home Building and Construction; 3) Home Improvement and Furnishings; 4) Home Financing, Technology & Services. Designed to track total annual spending on housing and housing-related services at the national level, each of the four segments is weighted based on its relative contribution to GDP. 

Hoya Capital Real Estate is the advisor to HOMZ and is distributed by Quasar Distributors, LLC.