January 20, 2022
The housing market was red-hot all year, with high demand meeting historically low mortgage rates and a pandemic-fueled flight from urban centers to the suburbs. Even though mortgage rates are expected to rise in 2022, the National Association of Realtors predicts prices to appreciate 2.8% appreciation for existing homes and 4.4% for new homes – signaling much of 2021’s strength will continue into the new year.
Should that strength continue as many expect, several stocks tied to the housing market stand to benefit. Here is a quick look at some of them.
The Mortgage Bankers Association estimates the industry will originate more than $2.5 trillion for each of the next three years, which is at least 40% higher than average annual originations between 2010 and 2019. As the leading wholesale mortgage lender in the nation by origination, it’s unsurprising that Detroit-based Rocket Companies, Inc. (Tii:RKT) originated $88 billion in mortgage originations in its third quarter alone. The provider of real estate, mortgage and financial services generated total revenue, net of $3.1 billion and adjusted revenue of $3.2 billion in its third quarter of 2021, representing 96% and 76% growth, respectively, compared to the same period in pre-pandemic 2019.
The number of home improvement projects has risen dramatically nationwide as homeowners spend more time within their abodes. The total U.S. home improvement expenditure amounted to $457 billion at the start of the pandemic in 2020, according to market research provider Statista, and has only climbed since. This elevated demand for home improvement products has created a boom period for Home Depot (Tii:HD). The world’s largest home improvement retailer reported sales of $36.8 billion for the third quarter of fiscal 2021, an increase of $3.3 billion, or 9.8% from the third quarter of fiscal 2020. Comparable sales for the third quarter of fiscal 2021 increased 6.1%, and comparable sales in the U.S. increased 5.5%.
A provider of insurance solutions, Lemonade, Inc. (Tii:LMND) has a strong vested interest in the housing market. With 30% of its business coming from homeowners’ insurance, the company’s customer count increased by 45% to 1,363,754 in the third quarter of 2021 as compared to the same period in 2020. This increased customer base contributed to a 101% increase in total revenue for the company’s third quarter, which totaled $35.7 million. In a move to bolster its auto insurance offerings, Lemonade is in the process of acquiring Metromile, Inc. (Tii:MILE), a data science company focused on the automotive space.
As the world’s largest owner, operator and developer of self-storage facilities with interests in 2,678 self-storage facilities located in 39 states, Public Storage (Tii:PSA) is in expansion mode. The company, which has benefited from strong consumer demand, increased third-quarter total revenues by 14%. Because of that growth, Public Storage has turned acquisitive, buying up 27 self-storage facilities last year with 2.2 million net rentable square feet for approximately $300 million. At the end of 2021, Public Storage expanded in the Dallas-Fort Worth market by acquiring All Storage, a self-storage portfolio, for $1.5 billion. The transaction adds 56 self-storage properties and 7.5 million net rentable square feet to the company’s portfolio.
Another housing-related company looking to expand through acquisitions is Redfin Corp. (Tii:RDFN). The technology-powered provider of real estate brokerage, instant home-buying, rentals, lending, title insurance, and renovations services agreed to acquire Bay Equity Home Loans for approximately $135 million in cash and stock. Bay Area, Bay Equity is a licensed mortgage lender in 42 states that will expand Redfin’s existing lending business by a factor of nearly 10. In addition to its mortgage lending business, Redfin is also expanding its brokerage services. The company expanded into certain California, Maryland and New York markets and now reaches more than 100 markets across the U.S. and Canada. The company also reports that a growing number of second-home markets have gained popularity with vacationers and remote workers during the pandemic.
When Masco Corp. (Tii:MAS) reported that its third-quarter sales increased 11% to $2,204 million late last year, it represented its fifth consecutive quarter of double-digit sales growth. The average consumer may not know Masco, but they certainly know of its brands. They include Behr paint, Delta and Hansgrohe faucets, bath and shower fixtures, Kichler decorative and outdoor lighting and HotSpring spas. As a result of strong demand for Masco products, the company expects to deliver full-year adjusted earnings per share in the range of $3.67 to $3.73 per share, representing approximately 19% growth compared to 2020.
The housing market may well level off in 2022, but industry watchers expect to remain strong. That means possible good news ahead for these and other housing-related brands.