In this article, we discuss 10 housing stocks to watch as price declines continue. If you want to see more stocks in this list, check out 5 Housing Stocks to Watch as Price Declines Continue.
Higher borrowing costs are impacting prospective homebuyers and homeowners around the world. Buyers are pressing pause on home purchases as central banks boost interest rates rapidly, which sent housing prices tumbling. Similarly, people who borrowed with low interest rates during the pandemic now face much higher interest payments as loans have revised. The real estate market has cooled off globally and it is heading for worse times as a global economic slowdown looms ahead. Although the property slump hasn’t reached the level of the 2008 housing crash yet, it depends on whether the Fed manages to tackle inflation without damaging consumer confidence and pushing the US economy in a deep recession.
The Australian and Canadian housing markets are experiencing double-digit house price declines, and economists are of the view that a global downturn in the housing market is just getting started. Hideaki Hirata of Hosei University and a former Bank of Japan economist, told Bloomberg on September 12:
“We will observe a globally synchronized housing market downturn in 2023 and 2024.”
Hirata warned that the full impact of this year’s rampant rate hikes will take time to play out and will be felt for a considerable time by households. “Sellers often overlook signs of shrinking demand”, he added. Higher mortgage financing costs will lead already mortgaged households to limit their spending, while also discouraging prospective buyers from entering the market. This not only affects the housing market but the economy overall. The present slowdown is a drastic change from the housing boom driven by loose monetary policies in the years following the financial crisis and the coronavirus pandemic, which created a flurry of homebuyers and resulted in tightened inventory and skyrocketing prices.
Mortgages are being refinanced all over the world as central banks raise rates, and first-time homeowners are seeing a drastic swing in inflation, without their income matching the rising prices. The latest rate hike by the Fed is only adding to the problems of the housing sector. This has come as quite a shock to millennials who went on a buying spree when the central banks provided easy mortgages right after the pandemic. Some of the housing stocks to watch as price declines continue include Lowe’s Companies, Inc. (NYSE:LOW), Builders FirstSource, Inc. (NYSE:BLDR), and D.R. Horton, Inc. (NYSE:DHI).
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Our Methodology
We picked these housing stocks after a careful assessment of the housing market in 2022, selecting companies that are poised to benefit or lose from the current environment. We have mentioned analyst ratings, business fundamentals, and data from 895 elite hedge funds tracked by Insider Monkey at the end of June 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Top Housing Stocks to Watch as Price Declines Continue
10. Tricon Residential Inc. (NYSE:TCN)
Number of Hedge Fund Holders: 10
Tricon Residential Inc. (NYSE:TCN) is a rental housing company focused on serving the middle-market demographic. The company owns single-family rental homes and multi-family rental units in 21 markets across the United States and Canada. On August 10, Tricon Residential Inc. (NYSE:TCN) reported a Q2 FFO of $0.16, exceeding estimates by $0.01, and a revenue of $99.85 million. The revenue gained 21.9% on a year-over-year basis. For 2022, Tricon Residential Inc. (NYSE:TCN) is expecting same home revenue growth of 8.0% to 9.5%, versus 7.5% to 9.5% in the earlier guidance.
On September 19, Citi analyst Michael Bilerman upgraded Tricon Residential Inc. (NYSE:TCN) to Buy from Neutral with an unchanged price target of $12.50. The analyst expects “solid” internal growth supported by a “sector leading” loss-to-lease and reliance on renewals, which he believes are more robust versus new lease rate growth.
According to Insider Monkey’s data, 10 hedge funds were bullish on Tricon Residential Inc. (NYSE:TCN) at the end of the second quarter of 2022, compared to 8 funds in the earlier quarter. The collective stakes in Q2 increased to $58.9 million from $35.7 million in the prior quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 1.80 million shares valued at $18.3 million. The fund boosted its position in Tricon Residential Inc. (NYSE:TCN) by 2241% in Q2 2022.
In addition to Lowe’s Companies, Inc. (NYSE:LOW), Builders FirstSource, Inc. (NYSE:BLDR), and D.R. Horton, Inc. (NYSE:DHI), Tricon Residential Inc. (NYSE:TCN) is one of the housing stocks to watch as prices continue to decline.
9. Redfin Corporation (NASDAQ:RDFN)
Number of Hedge Fund Holders: 19
Redfin Corporation (NASDAQ:RDFN) is a Washington-based residential real estate brokerage company. The company operates an online real estate marketplace and provides real estate services in the United States and Canada. On September 22, Redfin Corporation (NASDAQ:RDFN) expanded its tech-enabled real estate brokerage to buyers and sellers in Hilton Head, South Carolina. Additionally, the company enhanced its listing search feature to include approximately 570 new counties across 15 states. Redfin Corporation (NASDAQ:RDFN) is one of the housing stocks to watch as prices continue to decline.
On September 12, DA Davidson analyst Tom White lowered the price target on Redfin Corporation (NASDAQ:RDFN) to $9.50 from $13.50 and kept a Neutral rating on the shares. The analyst updated his estimates to factor in the larger headwinds in the U.S. housing market, slashing his FY22 adjusted EBITDA view to ($156.1 million) from ($22.7 million) and his FY23 view to ($49.5 million) from $89.6 million.
Similarly, on September 21, Piper Sandler analyst Thomas Champion noted that U.S. existing home sales declined 17% year-over-year in August with sales of 476,000 units, which represents the second largest year-over-year drop since May 2020. The analyst said inventory remained tight and fell month-over-month to 1.28 million units, but the 30% year-over-year August decline improved compared to a 32% drop in July. The analyst continues to view a weak housing market as a “headwind” for Redfin Corporation (NASDAQ:RDFN), maintaining an Underweight rating on the stock.
According to Insider Monkey’s data, 19 hedge funds were long Redfin Corporation (NASDAQ:RDFN) at the end of June 2022, compared to 23 funds in the prior quarter. Brian Bares’ Bares Capital Management is the biggest position holder in the company, with approximately 20 million shares worth $164 million.
Here is what Saga Partners has to say about Redfin Corporation (NASDAQ:RDFN) in its Q2 2022 investor letter:
“The Portfolio first bought Redfin in Q2’21. Redfin’s competitive advantage stems from its ability to integrate the demand aggregated from their web portal with full-time salaried agents. Because Redfin agents do not have to prospect for demand, they are more productive than traditional agents, providing Redfin with a lower cost per transaction compared to traditional real estate brokerages. The two other major real estate web portals, Zillow and Realtor.com, have different business models where third party agents advertise on their website. The web portals do not help agents become more productive but simply generate leads and therefore are part of the advertising costs of the traditional real estate value chain.
With barely a year of ownership, we have not really had enough time to evaluate longer-term trends since first buying Redfin, but in our first year, results have come in below what I would expect long-term trends to be. Since COVID, the housing market has been all over the place. It essentially froze during Q2’20, rebounded in H2’20 through 2021, and has since declined in 2022. Home prices have skyrocketed after COVID as housing inventory couldn’t keep up with demand and reached unsustainable levels as measured by historic values to household income levels. As mortgage rates have increased, home prices have barely dropped, causing home affordability and demand to drop. The overall housing market has continued to struggle in the first half of the year. Existing home sales continue to fall, with July declining 19% year-over-year. As a result, Redfin’s real estate transactions fell 4% year-over-year in Q2’22, the first decline (with the exception of Q2’20) since being a public company…” (Click here to see the full text)
8. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 19
PulteGroup, Inc. (NYSE:PHM) is a Georgia-based company engaged in the homebuilding business in the United States. It acquires and develops land for residential purposes, and leases, rents, and sells single-family detached, townhomes, condominiums, and duplexes under the Centex, Pulte Homes, Del Webb, DiVosta Homes, American West, and John Wieland Homes, and Neighborhoods brands.
PulteGroup, Inc. (NYSE:PHM) on September 20 declared a $0.15 per share quarterly dividend, in line with previous. The dividend is payable on October 4, to shareholders of record on September 22.
On September 19, KeyBanc analyst Kenneth Zener upgraded PulteGroup, Inc. (NYSE:PHM) to Overweight from Sector Weight with a $47 price target.
Among the hedge funds tracked by Insider Monkey, 19 funds reported owning stakes worth $517.60 million in PulteGroup, Inc. (NYSE:PHM) at the end of June 2022, compared to 27 funds in the prior quarter worth $318 million. Harris Associates is the leading position holder in the company, with 4.8 million shares valued at $191.6 million.
Here is what Miller Value Partners specifically said about PulteGroup, Inc. (NYSE:PHM) in its Q2 2022 investor letter:
“Homebuilders and financials, the worst losers during the Financial Crisis crash, plummeted. Some homebuilders, like PulteGroup, Inc. (NYSE:PHM), traded down to half their financial crisis lows despite reporting housing improvements for the first time. Fear ruled in the short term, but fundamentals ultimately prevailed. Homebuilders were top performers in 2012 posting triple-digit increases in some cases. Opportunity Equity was a top performer that year.”
7. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 29
Toll Brothers, Inc. (NYSE:TOL) is a Pennsylvania-based company that designs, builds, sells, and arranges finance for a range of detached and attached homes in luxury residential communities in the United States. The company operates in two segments – Traditional Home Building and City Living. On September 20, Toll Brothers, Inc. (NYSE:TOL) declared a quarterly per share dividend of $0.20, in line with previous. The dividend is payable on October 21, to shareholders of record as of October 7. The forward yield was 1.84%. It is a significant housing stock to watch as price declines continue.
On September 19, KeyBanc analyst Kenneth Zener upgraded Toll Brothers, Inc. (NYSE:TOL) to Sector Weight from Underweight without a price target. On August 29, Raymond James analyst Buck Horne reiterated an Outperform rating on Toll Brothers, Inc. (NYSE:TOL) but lowered the price target on the shares to $56 from $75. In Q3 2022, Toll Brothers, Inc. (NYSE:TOL) delivered EPS upside, but also a “dramatic” downside with new order growth being down 60% year-over-year, said the analyst. He believes the stock has already priced in a notable recession event despite that “shockingly negative order total through July”. The analyst continues to see “a heavily skewed risk/reward opportunity if this adjustment period proves to be anything less severe than a 2008-style housing crisis”.
According to Insider Monkey’s second quarter database, 29 hedge funds were long Toll Brothers, Inc. (NYSE:TOL), with collective stakes worth $625.8 million. Greenhaven Associates is the leading position holder in the company, with 5.3 million shares valued at roughly $239 million.
Here is what Baron Real Estate Fund has to say about Toll Brothers, Inc. (NYSE:TOL) in its Q2 2022 investor letter:
“Toll Brothers, Inc. is the leading luxury homebuilder in the U.S. Toll Brothers’ shares corrected more than 41% in the first six months of 2022. Its valuation is only 0.9 times tangible book value versus a long-term average of approximately 1.4 times book value and a peak multiple of approximately 2.0 times book value.”
6. Essex Property Trust, Inc. (NYSE:ESS)
Number of Hedge Fund Holders: 34
Essex Property Trust, Inc. (NYSE:ESS) is a fully integrated real estate investment trust that acquires, develops, and manages multi-family residential properties in selected West Coast markets. On September 15, Essex Property Trust, Inc. (NYSE:ESS) declared a $2.20 per share quarterly dividend, in line with previous. The dividend is distributable on October 14, to shareholders of record on September 30. Essex Property Trust, Inc. (NYSE:ESS) delivers a dividend yield of 3.66% as of September 26.
On September 19, Citi analyst Michael Bilerman upgraded Essex Property Trust, Inc. (NYSE:ESS) to Buy from Neutral with an unchanged price target of $295. The analyst sees three potential catalysts for Essex Property Trust, Inc. (NYSE:ESS) – its large exposure to Northern California and Seattle, which he noted have lagged other regions operationally so far and should perform comparatively well in 2023, its “relatively favorable” supply outlook, and a “strong long-term capital allocation track record”.
Among the hedge funds tracked by Insider Monkey, Israel Englander’s Millennium Management is the leading stakeholder of Essex Property Trust, Inc. (NYSE:ESS), with 506,231 shares worth $132.3 million. Overall, 34 hedge funds reported owning stakes in Essex Property Trust, Inc. (NYSE:ESS) at the end of Q2 2022, up from 26 funds in the earlier quarter.
Like Lowe’s Companies, Inc. (NYSE:LOW), Builders FirstSource, Inc. (NYSE:BLDR), and D.R. Horton, Inc. (NYSE:DHI), Essex Property Trust, Inc. (NYSE:ESS) is on the radar of smart investors as they monitor the prices in the housing market.
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Disclosure: None. “Globally Synchronized Downturn”: 10 Housing Stocks to Watch as Price Declines Continue is originally published on Insider Monkey.