One of the bright spots for the economy in 2020 was the housing market. Even prior to the coronavirus, the housing market was in good shape due to strong fundamentals – low housing supply, rock-bottom mortgage rates, and favorable demographics.
The coronavirus resulted in a surge in demand for housing as many people moved from cities to suburban or rural areas. These factors resulted in a sharp increase in home prices, strength for housing-related stocks, and another decline in the supply of homes.
Some skeptics believe that the strength in housing is transitory, as the coronavirus simply pulled demand away from future quarters. Thus, the housing market will lose steam, due to weaker demand going forward.
I disagree with this assessment.
The same fundamentals that were behind the housing market’s strength prior to the pandemic remain in play – currently housing is affordabie due to even lower mortgage rates, housing supply is close to record-lows, and the Millennials are entering their 30s and 40s when people tend to become homeowners.
Aggregate measures of the economy are in good shape like household balance sheets, incomes, and consumer spending that are consistent with the early stages of an expansion. Housing data is also confirming this picture.
(source: Bespoke Investment Group)
As the housing data above shows, housing has been gently strengthening since 2011. Now, this trend seems to be accelerating in recent months.
3 Stocks to Buy
There are several ways that investors can take advantage of the housing market’s strength. Some of the conventional choices are buying home improvement stocks, homebuilders, REITs, or materials stocks. And, certainly these stocks will do well with rising home prices that translates into more construction and renovations.
However, I believe that the stocks with the most upside are the real estate tech stocks. While many areas of the economy have been disrupted by technology, this is just beginning in real estate. Part of the challenge is that every state has its own regulations, and the entrenched participants in the real estate industry like agents or brokers have little incentive to change given that it would threaten their bottom line.
Nevertheless, it’s only a matter of time before real estate goes through this transformation. From other industries, we know that it will result in quicker transactions, lower transaction costs, and more transparency. Ultimately, the consumer is the winner, and the middle-men are the losers.
Fortunately, there are several innovative companies working on modernizing the real estate industry. Investors who want to take advantage of this trend should consider investing in…
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