3 Stocks to Ride the Housing Rebound

by Traders Reserve | October 22, 2013 2:56 pm

3 Stocks to Ride the Housing Rebound

Now that the government is finally back in business, all those potential home buyers who were stuck during the shutdown can get busy again filling out mortgage papers, or applying for refinancing or shopping for a new home.

And it means housing market momentum could return to its earlier pace. According to the REAL Trends Housing Market Report, the rate of housing sales increased 20.9% in September 2013 over a year ago. New and existing home sales grew from 5.2 million in September 2012 to 6.2 million in September 2013. Home prices have increased 5.5% compared to a year ago.

Now that popular opinion predicts that interest rates will stay low through the year and into 2014, the housing market momentum should keep building through what might otherwise have been a sluggish winter.

FBR Investment Bank continues to stand by its forecast of $1.4 trillion in original loans for 2014, due to a vibrant spring selling season. Plus, it anticipates a rebirth in refinances under the Home Affordable Refinance Program (HARP).

Another sign that housing remains on track is that September was the 36th consecutive month with an annual decrease in U.S. foreclosures. The total number of total of U.S. properties that started the foreclosure process for the first time during the third quarter dropped 13% from the previous quarter and 39% from a year ago.

All of the above should translate into a nice uptick in business for mortgage lenders and real estate brokers who no doubt are partying like it’s 1999.

If you’d like to get in on the action, here are three stocks that could reward investors.

Realogy Holdings

Realogy Holdings (RLGY[1]) is a real estate services provider that owns a huge corner of the market with Century 21, Coldwell Banker, ERA and Sotheby’s International Realty (BID[2]). In 2012, the company had a sales volume three times that of its nearest domestic competitor, accounting for 26% of all broker-assisted transactions in the U.S. It has 239,000 agents working in every corner of the world.

Already a force internationally, Century 21 announced that over the last six months, it has signed four new international master franchise agreements to license the Century 21 brand to operate in Austria, Croatia, Kosovo and Slovenia. Century 21 currently has a presence in 74 countries

Goldman Sachs (GS[3]) recently upgraded Realogy from a ‘hold’ to a ‘buy’ based on high valuations and raised its price target from $51 to $54. The stock currently trades at $43.93.

Wells Fargo

Sure, Wells Fargo (WFC[4]) just announced that it is laying off 925 employees in its home loan unit due to less demand for refinancing.

Yes, the bank made 42% less in home loans in the third quarter of 2013 than it did a year ago, the slowest quarter since second quarter 2011.

But it did report record profits of $5.6 billion in the third quarter, up from $4.8 billion last year. That alone makes it hard to look past Wells Fargo, the largest mortgage lender in the U.S. The fact that it brought in record profits despite a loss in home loans points to its diversified business model.

However, if interest rates don’t climb from here and sales and refinancing build on September gains, you can bank on Wells Fargo to capitalize more than any other lender. And don’t forget the 3% dividend.

Jacksonville Bancorp

This is no Wells Fargo, but in its space it can be just as profitable.

Jacksonville Bancorp (JXSB[5]), based in Illinois, owns a loan portfolio comprised of one-to four-family residential real estate; commercial and agricultural real estate; multi-family residential real estate loans; commercial and agricultural business loans; home equity loans and lines of credit.

Founded in 1916, it operates through its main office, as well as through six branches located in Jacksonville, Virden, Litchfield, Chapin, and Concord, Illinois. Midwest banks, according to an industry valuation metric, are expected to rise due to undervaluation.

Jacksonville Bancorp trades at a low P/E, at less than tangible book value despite a healthy balance sheet and room to increase its 1.60% dividend. Its stock currently trades at $19 and is forecast to hit $25.

The company’s board of directors just authorized a stock repurchase plan for up to 5% of its outstanding shares of common stock.

Endnotes:
  1. RLGY: http://studio-5.financialcontent.com/investplace/quote?Symbol=RLGY
  2. BID: http://studio-5.financialcontent.com/investplace/quote?Symbol=BID
  3. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  4. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  5. JXSB: http://studio-5.financialcontent.com/investplace/quote?Symbol=JXSB

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