"Amid considerable market uncertainty, several stocks tied to housing sold off even more than the broader market, but I'm still seeing some underlying positive trends for parts of this industry longer term," says Neil Nabar, portfolio manager of Fidelity® Select Construction and Housing Portfolio (FSHOX).
A surprise rate cut of 50 basis points (0.50%) by the US Federal Reserve in early March generally increased expectations for new home sales, he says, and later the same month, the Fed cut rates to zero. Home sales are very likely to take a near-term hit due to market uncertainty and travel restrictions due to the coronavirus, he says. Yet the trend has been very strong recently. He noted robust sales of single-family homes in February, right before the start of the pandemic. Nabar says one of the fundamental drivers for housing is that more millennials are starting families—a long-term trend he thinks could persist for some time. This is happening amid tight housing inventories, he adds.
Also, he believes home affordability remains in healthy territory, based on the ratio of average home prices compared with the national median income in the US.
Nabar tends to hold a combination of homebuilders, materials companies tied to homebuilding, residential real estate investment trusts, and home improvement retailers in the fund.
Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.
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