Home Sales Are Rising, But Who Stands to Benefit the Most?

Key Points

• Home sales in the United States housing market have been higher, but that doesn't mean everyone will benefit from a rebound.
• Three stocks stand out as potential winners in this coming secular trend for the real estate market.
• Investors face a new upside backed by analyst ratings and institutional buying recently, pointing to double-digit rallies.

After a few months of weakening data, home sales reports finally ticked higher, giving investors new hope for a rebound in the real estate sector. However, there is no reason to start celebrating yet, as other factors and themes need to fall back into line before the skies are clear for the industry. One month of positive data isn’t enough to erase quarters of contraction.

Be that as it may, it doesn’t mean that nobody could come out a winner from this situation, as there is a more significant trend behind the data that could fabricate long-term trends and upside in a certain niche for real estate. Mainly this trend is most likely to push the envelope for the real estate services sector, especially leasing and transactional services.

This is why stocks like Zillow Group Inc. NASDAQ: Z, SoFi Technologies Inc. NASDAQ: SOFI, and even RE/MAX Holdings Inc. NYSE: RMAX could become the next ones to see double-digit upside rates in the coming quarters, especially as the broader United States housing market goes into a secular cycle of growth and expansion due to the following dynamics.

Zillow Stock Gains Institutional Support Amid Emerging Real Estate Trends

Over the past quarter, FMC LLC has decided to boost its holdings in Zillow stock by up to 179.5%, bringing its net positions to a high of $325.3 million today, or 2.2% ownership in the company. The reasons behind this allocation are bigger than the recent sales number.

Whether it is for a transaction, or a leasing (rental) contract, Zillow acts as a middleman connecting realtors and customers for a fee. Knowing this, the cyclicality in each of those two markets are the drivers in the Zillow’s financials and ultimately its valuation.

According to their recent quarterly earnings, Zillow’s management has been focusing more and more on the rental segment and why it makes all the sense in the world. As price-to-income ratios in today’s housing market sit near all-time highs, and mortgage rates have risen back to flirt with 7%, there is very little demand for new homes at the moment.

Developers know this, so building permits have taken a hit in the past few quarters to reflect this trend. While those areas contract, Zillow’s rental division will probably start to take a larger share of the company’s net revenue. According to Bloomberg, up to 36% of Americans rent where they live, 50% more than pre-COVID levels.

As these trends might turn into multi-decade themes, today’s price targes on Zillow stock might not yet reflect the upside that might be present in the future. However, targets those at Jefferies Financial Group set reflect some attractive propositions in today’s market.

By reiterating their Buy ratings and placing a $90 share price target on Zillow stock, these analysts directly call for up to 10% upside from where the stock trades today, not to mention a new high for the year. After delivering a 110% rally over the past 12 months, investors can safely assume that there is enough bullish momentum to take care of the new upside.

SoFi Mortgages: Key to Unlocking New Highs in a Potential Turnaround

Suppose the renter nation scenario doesn’t play out, and a healthy rebound happens instead. Investors can probably lean on SoFi stock for a new upside. Considering that the mortgage market index is now at a 1996 low, any tailwind could boost the index significantly.

SoFi stock’s short interest has plummeted by 10.2% over the past month alone, showing signs of bearish capitulation in the face of all these bullish factors standing by, ready to bring the stock higher. More than that, institutional buyers have come in to replace the bearish traders who decided to cover their short positions and avoid further pain ahead.

Those at State Street Corp. boosted their holdings by 1.7% in SoFi stock as recently as November 2024, netting their investment at a high of $142 million for nearly 2% ownership in the company ahead of these potential tailwinds. To back this upside view, Wall Street analysts pitched in with their earnings per share (EPS) growth forecasts.

Forecasts are set for $0.10 a share in the next 12 months, a doubling from today’s $0.05 EPS level, enough to justify a similar jump in the stock’s valuation.

RE/MAX Stock: Discounts and Growth Potential Signal a New Rally Ahead

After a 45% rally over the past 12 months, there are reasons to believe that RE/MAX stock will come out ahead in all these housing trends. Whether renters take over or buyers find a way to return to the table, this stock stands as the middleman to make these connections a reality.

Just like Zillow is the platform, RE/MAX is the dealer, so whatever success is seen in Zillow, a portion of that momentum will end up in the income statement for RE/MAX. This is why the stock still carries up to 93.2% institutional ownership today and could be about to see more, given how cheap it trades today.

Price action aside, RE/MAX stock trades at only  0.6x price-to-book (P/B) valuations, meaning investors are getting a roughly 40% discount to the company’s book value today, enough to get anyone excited about the deal. More than that, the company’s low $395 million market capitalization allows it to quickly deliver double-digit upside runs.

Whatever the market turns, as has been stipulated for Zillow, this is one industry stock that could likely reach a new high soon.