After a difficult few weeks, will things start looking up as March wears on? One industry to watch is the housing market. Not only are we getting into spring – which kicks off the traditional homebuying season – but the Federal Reserve just gave us the gift of even lower interest rates.
Let’s get a lay of the land, and then we’ll see what steps we might take as investors.
The first thing to realize is that there’s actually a lot of scarcity in the U.S. housing market. In fact, there has been for a long time. Despite the economic recovery and growth of the 2010s, far fewer homes were built than in previous decades. When the National Association of Home Builders (NAHB) researched this in January, here’s what they found. Focusing on single-family housing starts (and adjusting for population growth):
- The 1960s averaged 47,997 starts per million Americans.
- The 1970s averaged 53,138 starts.
- The 1980s averaged 41,588 starts.
- The 1990s averaged 41,710 starts.
- The 2000s averaged 41,671 starts.
- That was nearly cut in half in the 2010s, which averaged 21,288 starts.
All the while, millennials are finding their financial footing and starting to buy homes, Gen X are in their peak earning years with growing families, and Boomers are starting to downsize and retire.
As a result, those homes are going faster. In its February report, Realtor.com found that homes were spending 80 days on the market, three fewer than February 2019. (And especially hot markets like Houston, TX, are averaging 68 days.) In turn, sellers are able to raise their listing prices. In February, listing prices were up 3.9% year-over-year, to a median listing price of $310,000.
Naturally, builders are also feeling good in this environment. That’s reflected in the NAHB’s Housing Market Index, which clocked in at 74 (out of 100) for February. That’s actually a slight downtick from 75 in January, before the COVID-19 coronavirus outbreaks threw a wrench into the global economy. Builders in the Southern and Western regions of the country were even more confident, at 79 and 82, respectively.
Overall, we’re looking at more homes about to be built: about 920,000 units of single-family construction in 2020, the NAHB projects. That would be 4% more than last year.
That being said, consumer demand is really the key for the U.S. housing market. And on Friday, we found out that unemployment is back to 3.5%, a 50-year low. When Americans feel like they’re on strong enough footing, they spend…and these mortgage rates are irresistible.
As recently as Feb. 20, the 10-year Treasury yield – which is a common benchmark for mortgages and other loans – was around 1.50%. Historically, that’s very low. And then after emergency rate cuts by the Fed, it fell even further to 0.74% by Friday!
In turn, mortgage rates hit an all-time low of 3.11%, Mortgage News Daily reports today. That’s way lower than you’d have paid in, say, 2018, and certainly in 2000. Back then, rates were at 8.5%. Now, even the 2018 level of 5% seems like a distant memory.
Add it all up, and people are feeling like if you’re going to get a mortgage, refinance, or take a home-equity loan to pay for renovations or schooling, then why not do it now?
So, if you’ve been watching the housing market, it wouldn’t have surprised you to hear that my pick for the InvestorPlace Best Stocks of 2020 contest is a mortgage company: PennyMac Financial Services (NYSE:PFSI). I made that selection in December, even before the Fed cut rates further. And in all this market volatility, PFSI has held up well for that reason.
PFSI is up 6.5% in 2020, at a moment when the major indexes are down 15%. The picture gets even better when you look at the one-year return:
But what you won’t see on the chart is what really makes stocks like PFSI a compelling investment: the fundamental and quantitative factors I look for in a great growth play.
Here’s PFSI’s Report Card from my Portfolio Grader, to see how it measures up on those factors now:
Yes, PFSI gets top marks on seven out of nine metrics. I’ve had great luck buying stocks that didn’t even rate quite that well. But you see why I’m on record saying this is the Best Stock of 2020. I won’t deny that this is a tough time for investors; today is the kind of session you only buy into if you’re the kind of person who likes bungee-jumping. But, in the long run, PFSI is the kind of stock that will excel.
And there’s another company I like that combines two of my top themes right now: real estate and 5G.
The 5G Buildout Is an Incredible Opportunity for Investors Right Now
Within two years, most cell phones will be 5G enabled and be able to wirelessly handle television streaming. With 5G, we’ll have cable modem speeds on any device; no need to plug in. That’s a big deal for rural areas … the very same areas that are also key to President Donald Trump’s reelection. So, by pushing 5G over the goal line, Trump will deliver a big win for his base — and strike a blow against Chinese rivals like Huawei Technologies.
But, in the big picture, 5G is about much more than trade wars and faster downloads. Because 5G is 100 times faster than 4G, it’ll allow your internet devices to work in real time. That advancement is a game changer for tech companies.
With the 5G infrastructure market set to grow at an annual rate of 67% over the next 10 years, the entire market will go from $780 million to nearly $48 billion. This buildout is where I see opportunity with 5G stocks now.
Cable companies can do their best to fight back with fiber optics … but they can’t compete with the convenience of a smartphone, once it’s got ultra-fast 5G. That’s how my 5G infrastructure play will capture more market share from the broadband cable companies.
Even in this tricky market, the stock I’m targeting is enjoying an influx of big money on Wall Street, and it has strong fundamentals, too — making it an A-rated “Strong Buy” in my Portfolio Grader system.
When you do, you’ll see how to claim a free copy of my new stock report, The Netflix of 5G, which has full details on this company — and what makes it such a great investment.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.