Declining unemployment rates, low interest rates, higher U.S. housing starts and the demand for homes are good news for homebuilders. Investors who are bullish on the U.S. economy and believe that unemployment will continue to decrease and interest rates to remain relatively low may wish to invest in home building exchange-traded funds (ETFs). Rather than  purchase land and build housing developments or purchase multiple stocks in the sector, ETFs allow investors to gain direct exposure to the home building industry in a cost-effective and simple way.

IShares U.S. Home Construction ETF

The iShares U.S. Home Construction ETF (NYSEARCA: ITB) is the largest ETF that tracks homebuilders. The ETF had total net assets of $1.23 billion, as of June 30, 2018. The fund charges an annual net expense ratio of 0.44%. The fund provides exposure to U.S. companies that construct residential homes by tracking the Dow Jones U.S. Select Home Construction Index, its benchmark index. The iShares U.S. Home Construction ETF benchmark index constituents include companies that construct residential homes, which include manufacturers of prefabricated and mobile homes. The fund's top industry allocations are 64.36% for homebuilding, 14.92% for building products, 9.79% for home improvement retail, 3.79% for home furnishing and 2.45% for specialty chemicals.

After the 2007-2009 financial crisis and during the U.S. economic recovery, the iShares U.S. Home Construction ETF generated high returns. As of September 30, 2018, based on trailing five-year data, the iShares U.S. Home Construction ETF had an average annual return (AAR) of 10.04% and an average annual standard deviation, or volatility, of 17.4%. Therefore, the fund is suitable for investors with a moderate to high degree of risk tolerance who believe that the U.S. economic recovery will continue, which would drive the homebuilder returns higher.

SPDR S&P Homebuilders ETF

The SPDR S&P Homebuilders ETF (NYSEARCA: XHB) is the second-largest homebuilders ETF, with total net assets of $656 million, as of October 10, 2018. The fund charges a below average annual net expense ratio of 0.35% when compared to its category of consumer cyclical funds. To provide exposure to the homebuilders industry, the SPDR S&P Homebuilders ETF tracks the total return performance of the S&P Homebuilders Select Industry Index, its benchmark index. As of October 10, 2018, the fund's top five industry allocations were 37.02% for building products, 30.65% for home building, 9.55% for home improvement retail, 9.11% for home furnishings and 7.44% for home furnishings. 

Similar to the iShares U.S. Home Construction ETF, the SPDR S&P Homebuilders ETF has experienced a rebound after 2007-2009 financial crisis. As of June 30, 2018, the fund had an AAR of 6.74% over the past five years. The fund has a projected three- to five-year earnings per share (EPS) growth of 14.60%, which is favorable to fund investors if a majority of the stocks meet or beat their EPS expectations. Consequently, the ETF is suitable for risk-tolerant investors who are bullish on the homebuilders industry.

Invesco Dynamic Building & Construction Portfolio

The Invesco Dynamic Building & Construction Portfolio (NYSEARCA: PKB) is the third-largest ETF that provides exposure to the homebuilders industry. As of June 30, 2018, the fund had total net assets of $178.12 million, which was well below those of the iShares U.S. Home Construction ETF and the SPDR S&P Homebuilders ETF. The Invesco Dynamic Building & Construction Portfolio charges an above average annual net expense ratio of 0.63% when compared to its category of industrials.

The fund tracks the Dynamic Building & Construction Intellidex Index and typically invests at least 90% of its total net assets in common stocks included in the index. As of June 30, 2018, the fund's top five industry allocations were 23.21% for home building, 21.35% for building products, 15.30% for construction materials, 10.66% for construction and engineering adn 5.28% for construction machinery and heavy trucks. 

Similar to the two largest ETFs tracking homebuilders, it generated favorable returns during the housing market recovery.