In this article, we discuss 10 housing stocks Redditors are buying. If you want to see some more housing stocks on the radar of the Reddit community, click 5 Housing Stocks Redditors are Buying.
Increasing mortgage rates are undoubtedly an unprecedented shock to the US housing market, with the average 30-year fixed mortgage rate rising from 3.11% to 5.11% in March. The market is facing an unchartered territory, since the Mortgage Bankers Association predicted the average 30-year fixed rate to climb to 4%, while Fannie Mae forecasted a 3.3% mortgage rate by the end of 2022. These rates were already surpassed in Q1 2022. Zillow, a digital real estate company, revised its projections for the US home prices. The new forecast suggests that home prices will shoot up by 14.9% between March 2022 and March 2023.
In an attempt to curb the raging inflation, the Fed is implementing rate hikes, just as it did to control the inflationary period during the 1970s. The higher rates pushed the US economy into a deep recession twice during the 80s, and mortgage rates exceeded 18% in 1981. A similar economic shock seems to be in store for the housing market presently. Devyn Bachman, vice president of research at John Burns Real Estate Consulting, stated on April 20 that the current mortgage rates make many willing candidates ineligible for homeownership, both in terms of affordability at full price and mortgage. It is also expected that there will be more competition in the lower-priced housing segment, and the high-end listings will see less price wars from buyers.
Zillow expects price growth to slow until later in the year, as homebuyers will pull back because of rising mortgages and consequent lack of affordability. However, it will still remain a buyer’s market. Similarly, Canadian housing demand has also seen a significant decline as The Bank of Canada has increased its core rate twice in 2022. On April 22, Robert Hogue, the assistant chief economist at RBC, noted that the high-end housing market will feel the greatest sting of the rising prices. In Canada, the homeowners market in Vancouver, Toronto, and other expensive areas will be affected worse than the others.
Some of the most notable housing stocks to watch in this market include The Home Depot, Inc. (NYSE:HD), Zillow Group, Inc. (NASDAQ:Z), and Builders FirstSource, Inc. (NYSE:BLDR). However, in this article, we discuss the housing stocks that Redditors are buying.
We scoured Reddit threads and forums to assess the investor sentiment around housing stocks in the past few weeks, picking the most popular names that were repeatedly chosen by Redditors. We have mentioned the analyst ratings, hedge fund sentiment, and business fundamentals of the companies to provide a detailed context to investors.
Housing Stocks Redditors are Buying
10. American Homes 4 Rent (NYSE:AMH)
Number of Hedge Fund Holders: 36
American Homes 4 Rent (NYSE:AMH) is a leading name in the single-family home rental industry, operating as a Maryland-based real estate investment trust. According to the latest Reddit threads, retail investors were flocking to American Homes 4 Rent (NYSE:AMH), and the shares have gained 11.05% in the last month.
On April 5, American Homes 4 Rent (NYSE:AMH) announced its intention to redeem all outstanding shares of its 5.875% Series F Perpetual Preferred Shares at $25.00 per share, as well as any accrued and unpaid dividends on May 5, 2022.
In 2021, American Homes 4 Rent (NYSE:AMH)’s full-year revenue came in at $1.3 billion, compared to $1.17 billion in the prior year. Net income for the year rose almost 35% from $140.4 million in 2020 to $189.1 million in 2021.
Jefferies analyst Linda Tsai initiated coverage of American Homes 4 Rent (NYSE:AMH) on April 20 with a Buy rating and a $48 price target. According to the analyst, the company has the potential for long-term growth since it was an early contender in a fragmented market. She also cited high barriers to entry, access to capital, geographic concentration in high growth markets, and margin expansion as favorable company specific drivers. She projects American Homes 4 Rent (NYSE:AMH) to grow FFO/share at an average growth rate of 11.3% through FY24.
According to Insider Monkey’s fourth quarter database, 36 hedge funds were long American Homes 4 Rent (NYSE:AMH), compared to 33 funds in the prior quarter. The collective stakes held by elite funds in Q4 amounted to approximately $897 million. Greg Poole’s Echo Street Capital Management is the biggest position holder in the company, with 5.6 million shares worth $244.70 million.
In addition to The Home Depot, Inc. (NYSE:HD), Zillow Group, Inc. (NASDAQ:Z), and Builders FirstSource, Inc. (NYSE:BLDR), elite hedge funds are piling into American Homes 4 Rent (NYSE:AMH) for exposure to the housing market.
Here is what Third Avenue Management has to say about American Homes 4 Rent (NYSE:AMH) in its Q3 2020 investor letter:
“During the quarter, the Fund initiated a position in the common stock of AMH—a US based Real Estate Investment Trust (“REIT”) that is the second largest owner of single-family homes for-rent (“SFR”) in North America with more than 52,000 homes throughout the Sunbelt region that are more than 94.0% leased on average. In addition, the company controls one of the few SFR build-to-rent platforms of scale with land secured to accommodate an additional 6,000 homes, including 1,200 currently under development.
AMH is a very well-capitalized issuer with a net debt to asset ratio of 25% and a fixed-charge coverage ratio in excess of 4.5 times. The company also retains substantial free cash flow despite its REIT tax status (which requires 90% of net income to be distributed via dividends annually) given legacy net operating losses. As a result, the company seems poised to self-finance the expansion of its portfolio through its unique build-to-rent initiative (which would likely ramp up considerably to the extent that anticipated reform at Fannie Mae and Freddie Mac increases the cost of conforming loans). Further, the very-much aligned control group (with strong ties to the self-storage industry) likely recognizes the opportunity to monetize the company’s scale in a capital-light manner by undertaking property management for third-parties and securing a future pipeline of acquisition opportunities in the process.”
9. Invitation Homes Inc. (NYSE:INVH)
Number of Hedge Fund Holders: 31
Invitation Homes Inc. (NYSE:INVH) is a Texas-based company that leases out single-family homes in good schooling districts and near common workplaces. On April 22, Invitation Homes Inc. (NYSE:INVH) declared a $0.22 per share quarterly dividend. The dividend is payable on May 27, to shareholders of the company as of May 10. The company’s dividend yield on April 22 stood at 2.03%.
Linda Tsai, an analyst from Jefferies, initiated coverage of Invitation Homes Inc. (NYSE:INVH) with a Buy recommendation and a $48 price target on April 20. According to the analyst, Invitation Homes Inc. (NYSE:INVH) is positioned for growth and will achieve a notable market share. The company can increase core FFO per share at an average growth rate of 9.8% through FY24, she added.
On March 4, Invitation Homes Inc. (NYSE:INVH) and Rockpoint Group announced a new joint venture partnership. The companies will acquire homes in top-quality locations and at higher price points relative to the homes presently targeted. Of the total $300 million equity pledged for the joint venture, Invitation Homes Inc. (NYSE:INVH) will commit $50 million and the remaining will be provided by Rockpoint.
Among the hedge funds tracked by Insider Monkey, 31 funds were long Invitation Homes Inc. (NYSE:INVH) at the end of December 2021, compared to 36 funds in the preceding quarter. The total stakes held in the fourth quarter were approximately $855 million. Jeffrey Furber’s AEW Capital Management is one of the leading shareholders of the company, with 3.3 million shares worth $153.3 million.
Here is what Baron Real Estate Fund has to say about Invitation Homes Inc. (NYSE:INVH) in its Q1 2021 investor letter:
“The Fund also has investments in REITs that would benefit from this movement out of urban areas into suburban areas. We expect single-family rental REIT Invitation Homes, Inc. to benefit as more people opt for single-family home rentals rather than apartment rentals.”
8. Meritage Homes Corporation (NYSE:MTH)
Number of Hedge Fund Holders: 33
Meritage Homes Corporation (NYSE:MTH) was founded in 1985 and is based in Scottsdale, Arizona. The company designs and constructs single-family housing units in the United States. Elite hedge funds are piling into Meritage Homes Corporation (NYSE:MTH). In the fourth quarter of 2021, 33 funds were bullish on the stock, up from 27 funds in the previous quarter.
In its 2021 financial results, Meritage Homes Corporation (NYSE:MTH) posted a full-year revenue of $5.1 billion, compared to a $4.5 billion revenue in 2020. Net income in 2021 stood at $737.4 million, up 74.14% from the prior year.
Credit Suisse analyst Daniel Oppenheim initiated coverage of Meritage Homes Corporation (NYSE:MTH) on April 5 with an Outperform rating and a $103 price target. The analyst believes Meritage Homes Corporation (NYSE:MTH)’s focus on entry-level and first time homeowners offers an extensive buyer pool. The analyst also noted that Meritage Homes Corporation (NYSE:MTH) focuses on price over volume as it understands the cost challenges from labor, materials, and available lots, which he believes demonstrates the company’s analytical approach to pricing/selling.
According to the database of 924 elite hedge funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management is the biggest position holder in Meritage Homes Corporation (NYSE:MTH) as of Q4 2021, with 1.18 million shares worth $144.6 million.
Here is what Sterling Partners Equity Advisors has to say about Meritage Homes Corporation (NYSE:MTH) in its Q4 2021 investor letter:
“Meritage Homes is a large public homebuilder in the United States focused on the entry-level and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.
Meritage had their highest gross margin, 29.7%, and EPS, $5.25, during the third quarter of 2021. Management believes the housing market remains solid from continued demand with historically low interest rates and limited housing supply.
We own the stock on the simple thesis that our modern society creates a stable demand for new homes as people need shelter and want modern designs.”
7. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 35
Headquartered in Atlanta, Georgia, PulteGroup, Inc. (NYSE:PHM) operates as a homebuilding company in the United States. The company designs and constructs single-family units, townhomes, condominiums, and duplexes under multiple brand names.
PulteGroup, Inc. (NYSE:PHM) posted its Q4 2021 financial results on February 1, reporting earnings per share of $2.51, beating analysts’ consensus estimates by $0.21. The $4.63 billion revenue increased 36.53% year-over-year, outperforming market predictions by roughly $163 million.
On April 13, JPMorgan analyst Michael Rehaut maintained an Overweight rating on PulteGroup, Inc. (NYSE:PHM) but lowered the firm's price target on the stock to $48 from $57. The analyst does not expect any "material or sustained rebound" in homebuilding stocks this earnings season, as he believes that core investor concerns will probably remain unaddressed. He has a "less constructive, more selective approach" on housing stocks amid the rising rate environment.
The fourth quarter database of Insider Monkey suggests that 35 hedge funds were bullish on PulteGroup, Inc. (NYSE:PHM), with collective stakes amounting to approximately $789 million. Cliff Asness’ AQR Capital Management held the biggest position in the company, with 1.73 million shares worth $98.2 million.
Just like The Home Depot, Inc. (NYSE:HD), Zillow Group, Inc. (NASDAQ:Z), and Builders FirstSource, Inc. (NYSE:BLDR), PulteGroup, Inc. (NYSE:PHM) is a notable contender in the housing market.
Here is what Miller Value Partners Opportunity Equity has to say about PulteGroup, Inc. (NYSE:PHM) in its Q4 2021 investor letter:
“Some homebuilders, like Pulte Homes (PHM), traded down to half their financial crisis lows despite early signs of housing fundamentals improving. This sharp divergence between the stock prices and the fundamentals created a great buying opportunity. Homebuilders were top performers in 2012, with Pulte gaining triple digits and many others posting similar gains.”
6. Zillow Group, Inc. (NASDAQ:Z)
Number of Hedge Fund Holders: 61
Zillow Group, Inc. (NASDAQ:Z) is a Seattle-based digital real estate company operating in the United States, offering the resale of homes, title and escrow services, and mortgage solutions. Zillow Group, Inc. (NASDAQ:Z) was a hot housing pick on Reddit in the past few weeks.
Zillow Group, Inc. (NASDAQ:Z)’s full-year revenue for 2021 came in at $8.1 billion, up from $3.3 billion in 2020. However, the net loss in 2021 increased to $527.8 million from a loss of $162.1 million in the prior year.
On March 30, Goldman Sachs analyst Michael Ng initiated coverage of Zillow Group, Inc. (NASDAQ:Z) with a Neutral rating and a $57 price target. Although digital real estate platforms like Zillow Group, Inc. (NASDAQ:Z) are positioned to benefit from the continuing transition to online real estate listings and diligence, they will probably encounter traffic growth headwinds from declining home sales and low inventory, the analyst told investors in a research note.
Hedge fund sentiment declined around Zillow Group, Inc. (NASDAQ:Z) in the fourth quarter of 2021. According to Insider Monkey’s Q4 data, 61 hedge funds held long positions in Zillow Group, Inc. (NASDAQ:Z), with collective stakes worth $2.20 billion, compared to 67 funds in the preceding quarter, holding stakes in Zillow Group, Inc. (NASDAQ:Z) valued at $4.25 billion. Karthik Sarma’s SRS Investment Management is the largest position holder in the company, with more than 5 million shares worth $326 million. Here is what Baron Asset Fund has to say about Zillow Group, Inc. (NASDAQ:Z) in its Q4 2021 investor letter:
“Real Estate investments detracted the most from relative performance, with real estate marketplace Zillow Group, Inc. accounting for all of the weakness. Zillow unexpectedly announced that it was exiting its home buying business, as it became apparent that the company had overpaid for many homes. We were surprised and disappointed by these developments and decided to exit our position in the company.
Zillow Group, Inc. operates the leading residential real estate websites in the U.S. In 2018, Zillow entered the iBuying market through its Zillow Offers unit, which purchased and resold homes, while also providing title, escrow, and mortgage services. By 2020, Zillow Offers had grown rapidly, was available in 25 markets and generated $1.7 billion in revenues. We were excited by the rapid growth in this business segment, and we believed that it could become a significant contributor to Zillow’s overall profitability. In November 2021, Zillow unexpectedly announced that it was exiting the home business, as it became apparent that the company had overpaid for a large number of homes, leading to a $500 million write-off. Their explanation for this shocking development was that the valuation algorithms they had developed had made dramatic errors. We were surprised and disappointed by these developments, which caused us to lose conviction in the company’s management and strategy. We exited the position during the quarter.”
Click to continue reading and see 5 Housing Stocks Redditors are Buying.
Disclosure: None. 10 Housing Stocks Redditors are Buying is originally published on Insider Monkey.