Construction Sector Surges: Why Building Materials and Homebuilder ETFs Are Worth Considering

The U.S. construction industry demonstrated notable strength throughout 2023, defying broader economic pressures and maintaining steady growth momentum. What makes this resilience particularly attractive to ETF investors is the confluence of favorable factors—chief among them the stabilization of building materials costs, which has expanded profit margins for construction companies and supported sustained capital spending. This backdrop creates compelling opportunities for investors seeking exposure to the building materials and construction sectors through specialized ETFs.

Stable Material Costs Create Tailwinds for Construction ETFs

One of the most significant advantages construction companies enjoyed during 2023 was price stability in building materials. The Producer Price Index for construction materials and components actually declined 0.2% year-over-year in mid-2023, a stark contrast to the inflationary pressures that plagued earlier periods. This cost control has been instrumental in allowing builders to maintain healthy margins despite elevated interest rates and persistent economic headwinds.

For building materials ETFs and construction-focused funds, this pricing environment is critical. When material costs remain predictable and relatively stable, construction companies can better forecast profitability and increase capital deployment. This directly benefits ETF investors holding positions in homebuilders and construction suppliers, as both groups benefit from improved operational efficiency and stronger cash flows. The stabilization has been a key factor enabling construction outlays to post successive months of growth throughout the year.

Residential Construction Rebounds as Single-Family Housing Leads

The residential construction segment has emerged as a primary growth engine. Single-family housing activity surged in 2023, providing substantial momentum to residential construction spending, which recorded multiple consecutive monthly gains. This rebound has been particularly noteworthy given that the single-family segment had faced prolonged inventory constraints in prior years.

Meanwhile, multifamily construction has shown signs of tempering growth, as developers navigate a substantial pipeline of apartment units scheduled for delivery in the near term. This divergence between single-family strength and multifamily moderation creates an important distinction for investors evaluating homebuilder and residential construction ETFs. The continued vitality in single-family housing underscores why funds like SPDR S&P Homebuilders ETF (XHB) and iShares U.S. Home Construction ETF (ITB) maintained investor interest, as they capture exposure to the stronger segment of the residential market.

Nonresidential Construction Expands with Infrastructure and Manufacturing Drivers

Beyond residential markets, the nonresidential construction sector exhibited impressive resilience, with total outlays advancing for 15 consecutive months through mid-2023. Two distinct drivers propelled this growth: private sector investment in manufacturing and lodging, alongside public spending on infrastructure modernization.

Public nonresidential spending benefited particularly from a surge in conservation initiatives and infrastructure investments targeting power generation, highways, streets, and transportation networks. These categories collectively represented over three-quarters of the monthly increase in public construction outlays. This dual expansion—combining private manufacturing dynamism with public infrastructure momentum—has broadened the appeal of diversified construction ETFs that capture exposure across multiple sub-sectors.

Building Materials and Construction ETF Options for Investors

Given these tailwinds, several ETF strategies merit consideration for investors seeking targeted exposure to the construction and building materials complex.

SPDR S&P Homebuilders ETF (XHB) provides pure-play exposure to homebuilders through the S&P Homebuilders Select Industry Index, with no single position exceeding 4.16% of assets. The fund’s 35 basis point fee makes it one of the most cost-efficient homebuilder-specific options available.

iShares U.S. Home Construction ETF (ITB) tracks the Dow Jones U.S. Select Home Builders Index using a market-cap weighted methodology. With a 40 basis point expense ratio, it offers balanced exposure to major homebuilding firms and provides investors with a slightly different index methodology than XHB.

Invesco Building & Construction ETF (PKB) broadens the aperture beyond pure homebuilders to encompass a wider range of construction-related companies through the Dynamic Building & Construction Intellidex Index. At 57 basis points, it charges a slightly higher fee but provides more comprehensive sector exposure including building materials suppliers and construction services providers.

iShares U.S. Infrastructure ETF (IFRA) captures the public infrastructure investment theme, with holdings spanning companies positioned to benefit from domestic infrastructure spending. The fund’s concentrated holdings—with no position exceeding 0.91%—and its competitive 30 basis point fee make it attractive for investors specifically targeting infrastructure-linked construction opportunities.

The Case for Building Materials and Construction Sector Exposure

The combination of building materials price stability, robust residential momentum, and expanding nonresidential investments creates a multi-faceted case for construction sector exposure through ETFs. Whether investors opt for pure homebuilder plays like XHB and ITB, or prefer broader construction exposure via PKB and IFRA, the range of building materials and construction ETF options allows for tailored portfolio positioning. The sector’s demonstrated resilience in the face of economic headwinds suggests sustained investment opportunity for those seeking systematic exposure to construction’s cyclical recovery.