Gimme shelter

Demand for houses is likely to remain strong, pushing up prices and benefitting builders.

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COVID-19 helped increase demand for houses in many suburban and rural areas as many workers left big city office buildings behind, but will widespread vaccination cause housing markets to return to “normal”?

“I don’t see that as a worry in most regions if interest rates remain low,” says Jason Weiner, who, along with Asher Anolic, manages Fidelity® Growth Discovery Fund (FDSVX). “To the contrary, I think demand for housing could increase and prices could rise further in a full economic recovery.”

US home prices rose for much of 2020 due to a combination of low inventory in many communities, lower mortgage rates, and, in some places, demand for second homes. Weiner notes that the average home price in the US gained 9.5% year-over-year through November, based on the S&P CoreLogic Case-Shiller US National Home Price NSA Index.

Weiner sees the growth trend continuing in 2021, largely because household formation has strongly outpaced new-home supply for most of the past decade.

Also, in an economic recovery, demand for housing tends to increase, as does spending on home furnishings and home improvement services tied to home sales, according to Weiner.

Weiner thinks many companies are likely to continue remote-work policies because they do not hinder productivity and many employees like them. This, he says, could lead some dual-income families to look for larger houses with space for 2 people to comfortably work from home.

In an attempt to capitalize on what Weiner and Anolic see as healthy housing-related trends, the fund held shares of homebuilders D.R. Horton (DHI), NVR (NVR), and Toll Brothers (TOL) as of year-end. Each tends to cater to younger buyers in fairly well-off suburbs. The fund also owned several stocks the managers think could benefit from housing strength, including power-generation equipment company Generac Holdings (GNRC), home fixtures and hardware maker Fortune Brands Home & Security (FBHS), and building-materials supplier Builders FirstSource (BLDR).

Fidelity® Growth Discovery Fund held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.

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