Going into the coronavirus, the housing market was one of the bright spots for the economy. The sector had been in a stealth bull market since 2013, and it could be argued that its strength was the one reason why the economy never slipped into a recession for the latter part of the bull market. Housing is connected to so many different parts of the economy and form the backbone of household balance sheets.
It's turned out that post-coronavirus, housing is also one of the strongest parts of the economy. The fundamentals of housing are strong - low housing supply and record-low mortgage rates. In this mix, the coronavirus has created a surge in demand with urban-dwellers looking to move to the suburbs or rural areas. This has dwarfed any sort of economic uncertainty that may have dented housing demand.
This is a continuation of an earlier theme that the coronavirus has been an accelerator of trends rather than a reversal like previous recessions. The same thing has happened with mega-cap tech and cloud computing stocks which were leaders going into the coronavirus crash and emerged even stronger from a business and stock price perspective.
Lagging Stocks
Many stocks exposed to housing have recovered and are at new highs, but there are a couple of compelling laggards. These stocks could rapidly rise in the coming months as long as the housing market's strength persists. There's good reason to believe this is the case given demographics, the Federal Reserve's commitment to keeping rates low till 2022, and forward-looking indicators like lumber prices.
Martin Marrietta Materials (NYSE: MLM) is 35% off its pre-coronavirus peak. The company supplies building materials to the construction industry. Continued strength in housing is likely to lead to higher prices which will spur increased home construction and renovations. Both are catalysts for building material stocks.
Radian Group (NYSE: RDN) is a mortgage insurer. This sector is about 50% off its pre-coronavirus peak. It tends to be lumped together with financial stocks, and there's concern that a wave of defaults could lead to heavy losses for these stocks. In preparation, they have set aside a significant amount in loan-loss reserves. However, higher home prices negate the possibilities of default as underwater homeowners could simply sell their house. Additionally, increased housing activity is a revenue-driver for these stocks.
Tronox (NYSE: TROX) makes titanium dioxide which is an important ingredient in white paint. Thus, it's business and stock price is highly leveraged to the housing market. Increased home building and renovations which tend to happen when home prices are rising, will lead to increased demand for Tronox's products. The stock tends to be a boom-and-bust play. For example, it went from under $5 in early-2016 to over $25 in late-2017. The stock has increased from its March low of $5 to today's price of $7 but has more upside if the housing market remains strong.