Housing Market Predictions for 2022 and 10 Stocks to Watch

Published on March 2, 2022 at 10:53 am by Hamna Asim in Hedge Funds, News

In this article, we discuss housing market predictions for 2022 and 10 stocks to watch. If you want to skip our comprehensive analysis of the housing market, go directly to 5 Housing Stocks to Watch.

Homeowners are seeing the value of their properties rise exorbitantly, and are sitting on some pretty nice gains. A fixed-rate mortgage with soaring prices in the housing market over the last year has proven to be an effective inflation hedge in the current environment.

Housing Market Outlook 2022

According to the latest data compiled by Redfin on February 13, 2022, the median home sale price jumped 15% year-over-year to $354,762. Compared to the same period in 2020, this was a 30% increase in home prices. Similarly, the number of homes listed for sale fell 27% year-over-year, declining to a record low of 447,000, down 49% from the same period in 2020.

Analysts expect the spring 2022 housing market to be red hot. Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune that the housing market is experiencing frustration at this point, and “spring buying has sprung, and it’s wild and it’s crazy out there”.

Owing to the COVID-19 pandemic, many analysts thought that the real estate and housing space would experience a slump. However, in mid-2020, millennials were enticed by low mortgage rates, and raced to buy their first homes. The sudden influx in housing demand led to diminishing inventory, and record bidding wars were witnessed in the market last spring as a result. There are essentially no desirable listings in the market, and homeowners looking to sell in this market are “receiving multiple offers and probably selling it well over asking [price]”, according to Bachman, as “there is no more patience” among buyers.

Zillow, an American online real-estate marketplace company, recently revised its predictions for the 2022 housing market. While it forecasted in December 2021 that the 12-month rate of home price growth would decline to 11% by the end of the year, the figure was revised in January, stating that 2022 would finish with a 12-month home price growth rate of 16.4%. The predictions were once revised, and the company now expects the year-over-year home price growth rate to peak at 21.6% in May and to close 2022 at 17.3%.

“Home Sales are Expected to Hit a 16-year High in 2022”

Danielle Hale, Realtor.com chief economist, stated on February 19 in a CNBC interview that despite inventory challenges in the housing market, home sales are expected to hit a 16-year high in 2022. The housing market is 5.8 million units undersupplied, relative to household formation seen over the last decade, according to the latest research by Realtor.com. As builders get permits to construct more houses, it will take some time before they fill the deficit capacity, which means that housing prices will remain highly competitive.

On February 19, Ivy Zelman, Zelman and Associates CEO, told CNBC ‘Closing Bell’ that she sees the housing market staying hot after a strong 2021. The number of cash buyers were up 27% and mortgage buyers were down 13%, as per reports on February 19. Sales of luxury homes priced at over $1 million were also really strong, up 39%. According to Zelman, the housing market is a great place to hide for investors amid the rising inflationary environment. 70% of homeowners are locked into mortgage rates of below 4%, so the rising rates are not hugely impacting the homeowners market currently, but this can definitely change over time, Zelman stated. However, supply chain constraints, rising inflation, and higher interest rates have started impacting builders and housing stocks, as new construction is not completed on time, and funding is more expensive to procure.

Housing stocks are poised to take advantage from the rising home prices, and some of the companies to watch in this environment include Builders FirstSource, Inc. (NYSE:BLDR), Opendoor Technologies Inc. (NASDAQ:OPEN), and The Home Depot, Inc. (NYSE:HD).

Housing Market Predictions for 2022 and 10 Stocks to Watch

Pixabay/Public Domain

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, and data from 924 elite hedge funds tracked by Insider Monkey at the end of December 2021 was used to identify the number of hedge funds that hold stakes in each firm.

Housing Market Predictions for 2022 and Stocks to Watch

10. Redfin Corporation (NASDAQ:RDFN)

Number of Hedge Fund Holders: 18

Redfin Corporation (NASDAQ:RDFN) is a Seattle-based full-service real estate brokerage firm. The company leverages technology to allow its agents to buy and sell homes for customers, in exchange for a fixed listing fee. Since its inception in 2014, the company has not had a single year with positive free cash flow, which makes the stock relatively undesirable for investors.

While housing sales look strong, persistent low inventory levels may be an issue for Redfin Corporation (NASDAQ:RDFN). Stephens analyst John Campbell on February 18 downgraded Redfin Corporation (NASDAQ:RDFN) to Equal Weight from Overweight with a price target of $26, down from $65, following the company’s fourth quarter report. He believes Redfin Corporation (NASDAQ:RDFN) “has some positives cooking” around a faster than expected ramp in profit improvements, but investors are likely to have too many questions around the business model and the macro backdrop “that just won’t be able to be answered in short order”. The analyst has thus moved to the sidelines and awaits a better entry point into Redfin Corporation (NASDAQ:RDFN).

Redfin Corporation (NASDAQ:RDFN) stock plunged 9.8% on February 23 after the Mortgage Bankers Association said that mortgage applications dropped by 13.1%, sliding to its lowest in more than two years. This has impacted purchase applications, which were already pressured by high home prices and tight inventory. This is a direct hit for Redfin Corporation (NASDAQ:RDFN).

In the fourth quarter of 2021, hedge fund sentiment improved around Redfin Corporation (NASDAQ:RDFN). The Q4 database of Insider Monkey suggests that 18 funds were bullish on the stock, up from 12 funds in the prior quarter. Bares Capital Management is the biggest stakeholder of Redfin Corporation (NASDAQ:RDFN), with 12.8 million shares worth $493.2 million.

In addition to Builders FirstSource, Inc. (NYSE:BLDR), Opendoor Technologies Inc. (NASDAQ:OPEN), and The Home Depot, Inc. (NYSE:HD), Redfin Corporation (NASDAQ:RDFN) is a housing stock on the radar of institutional investors.

9. Cavco Industries, Inc. (NASDAQ:CVCO)

Number of Hedge Fund Holders: 25

Based in Phoenix, Arizona, Cavco Industries, Inc. (NASDAQ:CVCO) is a prominent designer and builder of manufactured homes, modular homes, commercial buildings, park model RVs, and vacation cabins. Cavco Industries, Inc. (NASDAQ:CVCO) focuses on energy efficient, green homes.

On February 7, Wedbush analyst Jay McCanless raised the price target on Cavco Industries, Inc. (NASDAQ:CVCO) to $315 from $255 and kept a Neutral rating on the shares. The analyst believes demand for Cavco Industries, Inc. (NASDAQ:CVCO) remains robust, with a stable backlog and pricing power across its revenue channels. However, supply chain issues are still a drag on production but Cavco Industries, Inc. (NASDAQ:CVCO) managed to grow the capacity utilization by 5% despite those headwinds, the analyst added. At current levels, he views Cavco Industries, Inc. (NASDAQ:CVCO) as fairly valued.

The overall manufactured home industry is projected to grow, and Cavco Industries, Inc. (NASDAQ:CVCO) is a top company in southern America that is poised to benefit from the sector growth. Elite hedge funds hold large stakes in Cavco Industries, Inc. (NASDAQ:CVCO). In Q4 2021, 25 hedge funds were bullish on Cavco Industries, Inc. (NASDAQ:CVCO), up from 20 funds in the quarter earlier. Broad Bay Capital held the leading stake in the company, with 257,000 shares worth $81.6 million.

8. Essex Property Trust, Inc. (NYSE:ESS)

Number of Hedge Fund Holders: 27

Essex Property Trust, Inc. (NYSE:ESS) is a real estate investment trust with ownership interests in several multifamily residential properties across selected West Coast markets.

Mizuho analyst Haendel St. Juste lowered the price target on Essex Property Trust, Inc. (NYSE:ESS) on February 16 to $342 from $382 and kept a Buy rating on the shares. The analyst adjusted 2022 estimates modestly after the Q4 earnings and 2022 outlook for the apartment real estate investment trusts.

Essex Property Trust, Inc. (NYSE:ESS) is a reliable dividend aristocrat, with 27 consistent years of dividend growth under its belt. The company declared on February 24 a $2.20 per share quarterly dividend, a 5.3% increase from its prior dividend of $2.09. The dividend is payable on April 14, to shareholders of record on March 31.

In its 2022 guidance, published on February 2, the REIT attributed its progress to improving economic conditions, including better job growth, record job openings for the largest tech employers in Essex Property Trust, Inc. (NYSE:ESS) markets, and all-time high venture capital investment. Essex Property Trust, Inc. (NYSE:ESS) expects 2022 core FFO per share of $13.46-$13.94, less than the $14.01 consensus estimate, with its guidance assuming U.S. GDP growth of 3.7% and job growth of 2.9%. However, the company projects 2022 same-property revenue growth of 7.0% and net operating income growth of 8.0%-10.8%.

Among the hedge funds tracked by Insider Monkey, 27 funds reported owning stakes in Essex Property Trust, Inc. (NYSE:ESS), up from 21 funds in the prior quarter. Jeffrey Furber’s AEW Capital Management is the largest Essex Property Trust, Inc. (NYSE:ESS) stakeholder from the fourth quarter, holding 582,916 shares worth $205.3 million.

7. PulteGroup, Inc. (NYSE:PHM)

Number of Hedge Fund Holders: 35

PulteGroup, Inc. (NYSE:PHM) is a Georgia-based company that engages in the homebuilding business in the United States. On February 3, PulteGroup, Inc. (NYSE:PHM) declared a quarterly dividend of $0.15 per share, payable on April 5.

UBS analyst John Lovallo upgraded PulteGroup, Inc. (NYSE:PHM) on February 3 to Buy from Neutral with a price target of $70, up from $63. The stock’s current valuation sufficiently reflects the potential for moderating industry growth and peak earnings in 2022, the analyst told investors in a bullish thesis. If the market can gain comfort with the fact that housing volume could crest at a high level over the next few years and still support a period of elevated earnings well past 2023, a “meaningful re-rating in the group could occur”, according to the analyst. He believes PulteGroup, Inc. (NYSE:PHM)’s risk/reward is “decidedly favorable at these levels”.

On February 1, the company announced a $1 billion increase to its repurchase authorization program, which reflects the management’s belief in the ongoing earnings potential of the business. Given the strength of PulteGroup, Inc. (NYSE:PHM)’s operating model and resulting cash flow, money is being reinvested in the business and more funds are returned to shareholders.

PulteGroup, Inc. (NYSE:PHM) is positioned well to benefit from the climbing housing market. The hedge fund sentiment around the stock was bullish in Q4 2021. 35 funds held combined stakes worth roughly $789 million in the company. AQR Capital Management was the biggest shareholder of PulteGroup, Inc. (NYSE:PHM), with 1.7 million shares worth $98.2 million.

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. Toll Brothers, Inc. (NYSE:TOL)

Number of Hedge Fund Holders: 38

Toll Brothers, Inc. (NYSE:TOL) is a Pennsylvania-based building company that designs, markets, and finances residential and commercial establishments across the United States. In a red-hot housing market, companies like Toll Brothers, Inc. (NYSE:TOL), with strong balance sheets and high income clients in attractive markets, are highly favored by investors.

BofA analyst Rafe Jadrosich on February 28 upgraded Toll Brothers, Inc. (NYSE:TOL) to Buy from Underperform with a price target of $63, up from $61. Current home builder valuations look attractive compared to historical levels, but the analyst believes that these valuations are “even cheaper than they appear”, given that land acquired before the COVID-19 pandemic is worth more than current carrying value, industry return-on-equity has increased, builders are generating positive free cash flow on the upcycle, and supply chain challenges have accelerated share gains by public builders.

In the fourth quarter of 2021, 38 hedge funds were bullish on Toll Brothers, Inc. (NYSE:TOL) according to Insider Monkey’s records, up from 31 funds in the quarter earlier. Greenhaven Associates held the leading stake in the company, owning more than 5 million shares worth $376 million.

Toll Brothers, Inc. (NYSE:TOL) is a notable stock in the housing market, in addition to Builders FirstSource, Inc. (NYSE:BLDR), Opendoor Technologies Inc. (NASDAQ:OPEN), and The Home Depot, Inc. (NYSE:HD).

To see rest of the stocks in the list click to read 5 Housing Stocks to Watch.