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3 Stocks Poised to Benefit from Low Mortgage Rates

Thursday, July 23, 2020 | Sean Sechler
3 Stocks Poised to Benefit from Low Mortgage Rates

Even though the global pandemic appears to be causing some serious economic damage, things could be looking up for certain sectors. Positive signs in the housing market and home building industry have led stocks in the sector to make some sharp moves up in recent weeks. A big part of this has to do with low mortgage rates. Freddie Mac reported that the average 30-year fixed rate mortgage rate dropped to 2.98% for the week ended July 16th. This marked the first time in 50 years that mortgage rates have fallen below 3%.

There are several companies that are ready to capitalize on this favorable environment for homebuyers, which means you can find great investment opportunities if you know where to look. Here are 3 stocks that are poised to benefit from low mortgage rates and some reasons why they are worth considering for your portfolio.

Lennar Corporation (NYSE:LEN)

The first stock on our list is one of the nation’s largest homebuilders, Lennar Corporation. This company builds and sells houses for first-time, move-up, and active adult buyers at a broad spectrum of price points ranging from entry-level to luxury. It makes sense to look at a big homebuilder like Lennar because with mortgage rates so low the demand for new homes will likely increase. There’s also a lot of built-up demand for homes due to the lockdown that kept buyers away from house hunting for an extended period of time earlier this year.

Other reasons to consider buying this stock include a decent dividend yield of 0.70% and the fact that it offers mortgage refinancing for clients. Since mortgage rates are so low, it’s likely the companies that offer refinancing services will benefit from more people trying to take advantage of the lower rates. Lennar Corporation is set up for a great second half of 2020 and is a nice stock to own if you are looking for exposure to the homebuilder industry. The company reported a 27% year-over-year increase in EPS for Q2 and should benefit from current market conditions.

Meritage Homes Corporation (NYSE: MTH)

Another strong residential homebuilder that could benefit from low mortgage rates is Meritage Homes Corporation. This is a business that tends to offer entry-level homes that are perfect for first-time homebuyers. The company focuses on single-family detached homes and has been relying on a unique way of selling their houses. By offering its customers virtual platforms and tools to help them tour properties digitally, it has been able to continue its business with minimal disruptions during the pandemic. Since a lot of people are looking to shop from home and avoid putting their health at risk, this is a big plus.

Meritage Homes Corporation just reported it’s Q2 earnings and the results were resoundingly positive. With a 20% year-over-year increase in revenue, a 78% year-over-year increase in net earnings, and an all-time company record of 3,600 orders for the quarter, it’s safe to say that Meritage has a lot of positive momentum. The company’s CEO Steven J. Hilton helps to confirm our bull thesis for the housing market with this quote: “Demand for new homes is being driven by historically low mortgage interest rates, a shortage of used homes for sale, and an increased need for homes that can accommodate entire families working from home more than ever before.”

Lowe’s Companies Inc (NYSE: LOW)

The last stock on our list is Lowe’s, an American retail company that offers home improvement products. Lowe’s stock has been performing extremely well this year and the business has been able to keep its stores open throughout the pandemic. Lowe’s stands to benefit from low mortgage rates in several ways. First, since the low rates will encourage more home buying and building, there’s a good chance the demand for home improvement products will increase as well. Also, with people refinancing and saving money on their monthly mortgage payments, they will have extra cash on hand to tackle their home improvement projects.

This stock features a solid dividend yield of 1.48% and reported strong earnings in Q1. Lowe’s saw it’s Q1 online sales jump by 80% and it was able to increase its sales by 11.2% year-over-year. EPS increased by 35% year-over-year for the company as well and there’s a good chance the company will provide strong earnings results again when it announces its Q2 figures on August, 19th.

There’s No Place Like Home

Just because mortgage rates are historically low doesn’t necessarily mean that you have to buy a new house to take advantage of them. Adding any of these solid companies to your portfolio provides a great way to gain exposure to what could be an extremely lucrative housing market going forward.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Lowe's Companies (LOW)2.2$159.55flat1.38%21.22Buy$166.68
Meritage Homes (MTH)1.7$102.00flatN/A11.79Buy$98.75
Lennar (LEN)1.9$76.70flat0.65%10.70Buy$77.68
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