What Is the PHLX Housing Sector Index (HGX)?
The Philadelphia Stock Exchange (PHLX) Housing Sector Index (HGX) tracks housing development companies working directly in the U.S. construction market. Multiple companies in the building and prefabrication of residential homes, mortgage insurers, and suppliers of building materials make up the index. The index trades on the Nasdaq.
- The Philadelphia Stock Exchange (PHLX) Housing Sector Index (HGX) tracks housing development companies in the U.S. construction market.
- HGX began trading in July 2002 with an initial value of 250.
- Trading on the Nasdaq, the index calculates its value using the price return index and the total return index.
- Underlying component companies include Armstrong World Industries, M.D.C. Holdings, and Weyerhaeuser Company.
- Recalculation of the index occurs throughout the trading day and the index is rebalanced every quarter.
Understanding the PHLX Housing Sector Index (HGX)
The initial value of HGX was 250 in July 2022. The HGX experienced a two-for-one split in February 2006. At the market's closing on June 30, 2011, the total return index (XHGX) was synchronized to match the value of the price return index (HGX).
Historically, if home prices are rising, builders commit more construction contracts, resulting in increased revenue for home builders and a spike in their portion of the index.
Factors that affect the housing market, such as changes in lumber prices, often lead to corresponding changes in the index.
The PHLX Housing Sector Index (HGX) uses two methods to calculate its value. These two methods are the price return index (Nasdaq: HGX) and the total return index (Nasdaq: XHGX).
The calculation of the price return index does not include the value of cash dividends on Index Securities. Conversely, the total return index consists of the reinvestment of cash dividends, on the ex-dates, in its figures.
Components of the PHLX Housing Sector Index (HGX)
The Nasdaq lists many requirements for the structure of the PHLX HGX. The index is a modified market capitalization-weighted index. Weighting indicates the underlying components have adjustments based on the total value of all outstanding shares of that company.
As the value of the outstanding shares changes due to daily market activity, the weighting of that element in the index will also change. Recalculation of the index occurs throughout the trading day, and its value updates every second.
In the case where an underlying component halts trading on its listed market, the index will use the "last safe price" for the security in its calculations. Further, no individual stock will have more than a 15% weight, and the index will rebalance each quarter.
Some of the top underlying components of the PHLX HGX, along with the trading ticker symbol of each company, are:
- Armstrong World Industries (AWI)
- Vulcan Materials Company (VMC)
- Weyerhaeuser Company (WY)
- PennyMac Financial Services, Inc. (PFSI)
- M.D.C. Holdings, Inc. (M.D.C)
- Lennox International Inc. (LIL)
- LGI Homes, Inc. (LGIH)
- Mueller Water Products, Inc. (MWA)
- M/I Homes, Inc. (MHO)
- D.R. Horton, Inc. (DHI)
Many events impact the value of the PHLX HGX, especially the interest rate. When the Federal Reserve initiated three interest rate hikes throughout 2018 and projected several more hikes throughout 2019, this higher-rate campaign pushed 30-year mortgage rates to multi-year highs.
Consequently, new home sales plummetted, falling for two consecutive months in June and July, which are traditionally strong sales months. In 2018, the HGX dropped 42% by year-end from its January highs.
During the COVID-19 pandemic in 2020, the index saw a boom as the housing market grew after a long period of decline. The price of the index in the summer of 2021 was higher than the price before the pandemic began in March 2020.
By mid-2022, the Federal Reserve Board began raising interest rates and the index dropped since rate increases often signal upcoming downturns in the housing market. The index fell from 528.8 on Jan. 3, 2022 to 355.8 on June 29, 2022, representing a 32.7% decline.