Low Mortgage Rates To Boost Housing Market: 5 Stocks To Buy
Zacks Investment Research | Feb 06, 2020 10:38PM ET
The Federal Reserve’s three consecutive interest rate cuts during the second half of last year and decision to hold rates steadily throughout 2020 have aided the U.S. housing market.
Moreover, in the last few weeks, fears about the coronavirus pandemic made investors rush for treasury bonds as a safe haven. With the rising demand for treasury bonds, interests dropped, which also impacted mortgage rates.
On Feb 6, Freddie Mac stated that the average for a 30-year fixed-rate home loan declined to 3.45% from 3.51% the week before. This was the third consecutive week of decline. The last time the rate was at or below this level was in October 2016, when it averaged 3.42%. Additionally, the 15-year fixed-rate mortgage dropped to 2.97% for the first time since 2016.
U.S. Housing Industry to Expand in 2020
Mortgage rates declined due to lower interest rates last year, and now the widespread fears over coronavirus have resulted in further decline. And that’s certainly a blessing for the U.S. housing market.
The Mortgage Bankers Association stated that declining mortgage rates created a rush for refinance. Mortgage applications rose 5% for the week ending Jan 31, which was led by a 15% rise in refinance applications. Demand for refinancing was the highest since June 2013.
Millennials are a key catalyst, contributing to expansion of the housing space. In fact, the majority of Gen Y will be turning 30 this year, a prime age considered to buy home. This in turn will increase the demand for entry-level homes. And why not? Thanks to low mortgage rate that helps in overcoming high debt and financial restraints, Millennials are going to take out more than half of new mortgages in America.
While baby boomers look for apt weather, lower taxes and low cost of living to enjoy their retirement life, millennials are searching for family-friendly lifestyles and affordable places to stay.
The rise in demand is evident from the increase in construction of new homes, which grew 16.9% at an annual rate of 1.608 million in December. beating the consensus estimate of 1.374 million. The figure marks a 13-year high and is 40.8% above the December 2018 figure of 1.142 million and 2.6% above November’s revised figure of 1.375 million.
On the supply side, sales of previously owned home rose 3.6% in December from the previous month to an annual rate of 5.54 million, according the National Association of Realtors data released on Jan 22. Additionally, existing home sales were boosted by rush in sales of multi-family housing and single-family homes.
5 Stocks to Buy
Thanks to low mortgage rates, investors can make the most by investing in homebuilders and construction related companies. We have shortlisted five such stocks that sport a Zacks Rank #1 (Strong Buy) and are poised to grow. You can see Zacks Investment Research
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