© Reuters. 3 real estate stocks to buy in the downturn
Housing construction was one of the strongest branches of the economy last year. However, the sector has seen some profit taking over the past month, which opens up a buying opportunity. 3 home-related stocks that should be considered buying on a decline are Hovnanian Enterprises (NYSE :), Tempur Sealy International (NYSE :), and Industrie Natuzzi (NTZ). One of the most notable developments of the past year has been the strength in the housing market. Given the coronavirus, conditions were favorable due to low rates and low inventory levels. However, the pandemic resulted in even lower rates and an increase in demand as people were eager to move from the cities to the suburbs and rural areas. Of course, the increase in teleworking also contributed to this, giving people more flexibility in choosing a location.
Unsurprisingly, the S&P CoreLogic Case-Schiller 20 City Home Price Index has risen 12% over the past 15 months and has hit new all-time highs. This is borne out by anecdotal evidence as there are bidding wars for houses across the country. This strength is also reflected in home builders, such as the SPDR S&P Homebuilders ETF (XHB), which has risen more than 200% since the market low in March 2020.
However, real estate stocks have weakened since early May as the XHB has fallen about 12% since its May 10 high. While there are some signs that real estate market momentum is slowing, longer-term fundamentals remain supportive. Put simply, the housing market will continue to grow, albeit more slowly than last year. Therefore, investors should take advantage of the recent weakness as an opportunity to buy and target high quality stocks such as Hovnanian Enterprises (HOV), Tempur Sealy International (TPX) and Industrie Natuzzi (NTZ).
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