We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Reasons Why Housing Market Appears Due for a Sharp Rebound
Read MoreHide Full Article
The U.S. housing market was one of the worst-hit amid the coronavirus-led lockdown. In any case, the space was struggling with land and labor shortage as well as higher prices. The coronavirus outbreak made matters worse. However, things are looking up lately.
Per real estate brokerage Redfin, home-buying demand has come back with forceand is now 16.5% above pre-coronavirus levels on a seasonally adjusted basis, helped by record-low mortgage rates. Inventories failed to meet demand.
Touring homes virtually with online 3D walkthroughs is gaining popularity due to the pandemic. For the week of May 10, 9% of new homes listed for sale had a 3D model, up from only 2% in January and February prior to the pandemic.
Another group Realtor.com expects home sales in the United States to rebound in late summer and early fall as fears of coronavirus begin to cool down, before experiencing a slump again later in the year. Alex Pettee, president, director of Research & ETFs, Hoya Capital Real Estate, also believes that “some metrics [of the housing industry are] showing a V-Shaped recovery pattern.”
Below we highlight the factors that could cause a sharp recovery in the near term.
Low Mortgage Rates
Per a report from Mortgage Bankers Association issued on May 20, "applications for home purchases continue to recover from April's sizeable drop and have now increased for five consecutive weeks. Purchase activity - which was 35 percent below year-ago levels six weeks ago - increased across all loan types and was only 1.5 percent lower than last year." However, despite record-low mortgage rates, refinance activity slid to its lowest level in over a month due to tighter credit conditions. But the momentum should last in the remainder of 2020.
Likely Decline in Home Prices
The coronavirus crisis is likely to cause the price to decline 2-3% a by the end of 2021, per Zillow Group, which estimated that U.S. GDP will decline 4.9% this year and increase 5.7% next year. The decline in economic growth will also cause home sales to drop up to 60% when compared to pre-coronavirus levels.
Post-Pandemic “Suburban Revival”
According to Pettee, a potential post-pandemic “suburban revival” would boost home buying. The coronavirus outbreak has made the work-from-home option a big hit. Companies now will likely be offering the option permanently with more ease; so many are now moving to suburban areas to avoid high expenses needed to incur in a dense and expensive city. Suburban areas offer more affordable homes.
Millennial-Led Demographics
Investors should note that millennials have overtaken baby boomers in U.S. population. In 2020, millennials are expected to buy the majority of real estate in the United States, per a report from Realtor.com published in early February, quoted on CNBC.
“Realtor.com predicts that millennials’ share of mortgage originations will surpass an unprecedented 50% in the spring, outnumbering the share of total homes purchased by members of Generation X and baby boomers, at a respective 32% and 17%.” Though the COVID-19 outbreak stalled the momentum at the start of Spring, pent-up demand from millennials should be realized now with record-low rates.
Decent Financial Position of Builders
Overall, debt-to-equity ratio of the sector stands at 0.50X versus 0.76X for the S&P 500-based ETF SPY. Current ratio of the industry stands at 4.44X versus 1.29X of IVV, meaning the sector is well positioned in meeting short-term liquidity needs.
Stock Picks
Against this backdrop, below we highlight a few homebuilding stocks that have a favorable Zacks Rank.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Shutterstock
5 Reasons Why Housing Market Appears Due for a Sharp Rebound
The U.S. housing market was one of the worst-hit amid the coronavirus-led lockdown. In any case, the space was struggling with land and labor shortage as well as higher prices. The coronavirus outbreak made matters worse. However, things are looking up lately.
Per real estate brokerage Redfin, home-buying demand has come back with forceand is now 16.5% above pre-coronavirus levels on a seasonally adjusted basis, helped by record-low mortgage rates. Inventories failed to meet demand.
Touring homes virtually with online 3D walkthroughs is gaining popularity due to the pandemic. For the week of May 10, 9% of new homes listed for sale had a 3D model, up from only 2% in January and February prior to the pandemic.
Another group Realtor.com expects home sales in the United States to rebound in late summer and early fall as fears of coronavirus begin to cool down, before experiencing a slump again later in the year. Alex Pettee, president, director of Research & ETFs, Hoya Capital Real Estate, also believes that “some metrics [of the housing industry are] showing a V-Shaped recovery pattern.”
Below we highlight the factors that could cause a sharp recovery in the near term.
Low Mortgage Rates
Per a report from Mortgage Bankers Association issued on May 20, "applications for home purchases continue to recover from April's sizeable drop and have now increased for five consecutive weeks. Purchase activity - which was 35 percent below year-ago levels six weeks ago - increased across all loan types and was only 1.5 percent lower than last year." However, despite record-low mortgage rates, refinance activity slid to its lowest level in over a month due to tighter credit conditions. But the momentum should last in the remainder of 2020.
Likely Decline in Home Prices
The coronavirus crisis is likely to cause the price to decline 2-3% a by the end of 2021, per Zillow Group, which estimated that U.S. GDP will decline 4.9% this year and increase 5.7% next year. The decline in economic growth will also cause home sales to drop up to 60% when compared to pre-coronavirus levels.
Post-Pandemic “Suburban Revival”
According to Pettee, a potential post-pandemic “suburban revival” would boost home buying. The coronavirus outbreak has made the work-from-home option a big hit. Companies now will likely be offering the option permanently with more ease; so many are now moving to suburban areas to avoid high expenses needed to incur in a dense and expensive city. Suburban areas offer more affordable homes.
Millennial-Led Demographics
Investors should note that millennials have overtaken baby boomers in U.S. population. In 2020, millennials are expected to buy the majority of real estate in the United States, per a report from Realtor.com published in early February, quoted on CNBC.
“Realtor.com predicts that millennials’ share of mortgage originations will surpass an unprecedented 50% in the spring, outnumbering the share of total homes purchased by members of Generation X and baby boomers, at a respective 32% and 17%.” Though the COVID-19 outbreak stalled the momentum at the start of Spring, pent-up demand from millennials should be realized now with record-low rates.
Decent Financial Position of Builders
Overall, debt-to-equity ratio of the sector stands at 0.50X versus 0.76X for the S&P 500-based ETF SPY. Current ratio of the industry stands at 4.44X versus 1.29X of IVV, meaning the sector is well positioned in meeting short-term liquidity needs.
Stock Picks
Against this backdrop, below we highlight a few homebuilding stocks that have a favorable Zacks Rank.
D.R. Horton Inc. (DHI - Free Report) – Zacks Rank #3 (Hold)
KB Home (KBH - Free Report) – Zacks Rank #2 (Buy)
Lennar Corporation (LEN - Free Report) – Zacks Rank #3
Meritage Homes Corporation (MTH - Free Report) – Zacks Rank #3
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>