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2 Buys in Real Estate for the New Normal

Zillow Group and Lennar could benefit from an outmigration from cities as more employers allow employees to work from home post-pandemic.
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According to Federal Reserve Chairman Jerome Powell, the economic recovery from the pandemic will be "highly uncertain and subject to downside risks." The recovery is likely to be uneven due to the unique circumstances of this changing environment.

For example, when the economy recovers, we should see an uptick in real estate activity. Mortgage rates are at or near their all-time lows, but another big driver could be a change in perception.

We could see a shift in the types of properties and locations that are viewed as attractive. At least in the near term, I expect there will be a migration away from cities in favor of more suburban areas.

One reason cities attract us is because of the employment opportunities they provide. Urban jobs are plentiful and varied, as are the accompanying cultural experiences.

However, in the future, more of us will be working from home instead of in an office, and the Covid-19 pandemic is accelerating that change. Just this week, Twitter Inc. (TWTR) announced that nearly all its employees will be allowed to work from home on a permanent basis.

I'm expecting many companies to follow suit. Employers will have a reduced need to lease office space. Employees will save time and money from reductions in travel and transportation. The overall impact of this change favors a near-term migration away from cities.

Don't discount the fear of a resurgence of Covid-19 in this equation. The potential for the spread of an infectious virus is greater in heavily populated areas, and this is a negative for urban settings.

One name that could benefit is online real estate hub Zillow Group Inc. (Z) . For many, Zillow is a must for facilitating potential real estate sales and purchases.

Zillow is chugging higher within a bull channel, and this week's pullback has pushed it to the low end of that channel. Zillow touched $57 on May 8, but the stock closed Wednesday at $46.

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Zillow Group (Z) Source: TradeStation

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Obviously, if we do see an accelerated migration to the suburbs, homebuilding stocks will benefit from a surge in demand. Because of this, the chart of Lennar Corp. (LEN) has a similar look to Zillow, as do many of the homebuilders. Lennar is also moving toward the low end of a bull channel.

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Lennar Corp. (LEN) Source: TradeStation

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The benefit of buying at the low end of the channel is twofold. Investors can take advantage of a bullish trend, and they do so as the stock is discounted from its recent highs. Because of this, I'm initiating small positions in Zillow and Lennar and will add to them if and when they exceed the most recent high within the channel.

At the time of publication Ponsi was long Z and LEN.