It seems counterintuitive. Why get excited about housing-related stocks when millions of people are out of work and worries are mounting about a second wave of the corona virus?
But like other things about this economy plagued by COVID that has surprised investors, the power in some parts of the real estate market is completely unexpected. US house prices are on the rise and demand for mortgages is on the rise – even with the near-record highs. index, applications for new loans have risen for nine consecutive weeks. They are now at the highest level since the end of January, just a record 12 years.
Mortgage loans have not been as profitable since the beginning of the year since 2013, according to Association data. Margins averaged about 61 basis points per loan from January to March, almost double the first quarter 2008 average, said Marina Walsh, MBA's vice president of sector analysis in a Bloomberg report.
Mr. Cooper Group (NASDAQ :), one of the largest companies in the industry, told investors on May 28 that margins could be 3% this quarter, more than triple last year.
COOP Weekly TTM
The company's stock price, after recovering from the dip in March, is now close to a one-year high of $ 14.68. It closed at $ 13.21 yesterday.
An obvious explanation for this hyperactivity in the mortgage market: extremely low interest rates after the Fed's to help the economy recover from the recession. With the average rate for a 30-year mortgage dropping to 3.2%, some borrowers want to refinance. Still others see the low rates as a good reason to enter the housing market now.
Shifting Trends
In addition to low rates, new, new catalysts are emerging as people begin to change their job expectations and living standards in response to the COVID-19 pandemic . The crisis has accelerated trends in U.S. homes that were already underway, including the expansion of single-family homes, according to a Morgan Stanley report on post-pandemic life.
The report recommends purchasing Invitation Homes (NYSE :), a Dallas, Texas-based REIT that specializes in leasing single-family homes. The real estate investment fund is known for its high-quality assets and, according to Morgan Stanley, can beat the performance of REITs handling apartments.
During the earnings report, Invitation Homes said rental income in April was more than 95% of the historical average. In addition, less than 2% of residents chose to postpone part of their rent for that month.
The company's shares have gained 62% in the past three months. On Monday the stock closed $ 28.15.
Another home-related inventory that is following this wave is Lowe's (NYSE :), the number 2 in home improvement in the country. The international chain is benefiting from the increased demand for its products as workers hide in place rather than commute to the office and turn to home renovations to meet additional needs.
LOW shares have more than doubled in the past three months. On Monday the stock closed at $ 134.72.
But amid these changing trends that have boosted several companies, there are also some losers. The pandemic has forced shopping centers, restaurants and offices to close, sending consumers to online shopping platforms and forcing employees to work remotely.
Many companies have discovered that working from home can be a viable option for a significant percentage of employees, resulting in cost savings due to the fact that some employees no longer require office space.
Simon Property Group (NYSE :), America's largest shopping center operator, has seen its inventory fall by around 60% this year as stores struggled to pay rent with bankruptcy filing.
One of Wall Street's most successful investors, billionaire Carl Icahn, said in recent media interviews that his biggest trade right now is a multi-billion dollar short position against the commercial real estate market. "You're going to blow this up, too, and no one is even watching it," Icahn told CNBC in a recent interview.
Bottom Line
Low interest rates and changing living and working patterns increase the value of a variety of real estate-related stocks. Some of the biggest beneficiaries are home improvement outlets, such as Lowe's and Home Depot (NYSE :), as well as mortgage lenders.
