This has been quite a year in homebuilding, buying, and selling, as record low interest rates have helped power a mid-pandemic rally that's seen home prices hit record highs in multiple markets across the country.
While that's made finding bargains a bit harder for real estate investors looking to buy and flip, there are still good deals to be had in residential real estate through another channel: the stock market.
Below are three strong players we think merit some consideration for a postelection buy. After all, no matter who's in the White House, folks will still be buying, selling, building, and moving.
D.R. Horton among homebuilders
Founded in Fort Worth, Texas, in 1978 by Donald Ray Horton, D.R. Horton (NYSE: DHI) claims the title of largest homebuilder by volume in the United States since 2002. The company boasts operations in 88 markets in 29 states and closed 61,164 homes in the 12-month period ended June 30, 2020, under the D.R. Horton, Emerald Homes, Express Homes, and Freedom Homes brands, with prices ranging from $100,000 to more than $1 million.
In its third-quarter earnings report, D.R. Horton said net income shot up 39% in the nine months ended on June 30 compared to the year-ago period, driven by an 11% increase in homebuilding revenue to $13.5 billion from the year prior. The company said it closed on 45,140 homes in those three quarters, also 10% more than the year-ago period.
And, while many others were suspending dividends (if they had been paying any at all), D.R. Horton declared a dividend of $0.175 per share, continuing a run of quarterly payouts extending back to 2014. D.R. Horton stock was trading at about $71 on Nov. 6, still off its 52-week high of $81.21, and its P/E ratio of 12.92 seems like it might even be a bit undervalued.
While other homebuilders have had strong showings, too, how well they can keep up with demand may be important to future performance. In its third-quarter report, D.R. Horton says, "the Company was and remains well-positioned for this increased demand with its affordable product offerings, lot supply, and housing inventories, particularly completed homes and those close to completion."
The company also is continuing to grow through acquisitions, most recently announcing the purchase of the largest homebuilder in Corpus Christi, Texas.
Not confining itself to stick-building the American dream, D.R. Horton also operates mortgage, title, and insurance subsidiaries that target its homebuyers.
D.R. Horton also is partnering outside its wheelhouse but within its space. For instance, the homebuilder has partnered with Zillow to offer potential buyers a $2,000 closing credit and free or discounted local move if they sell their home through the Zillow Offers program.
And, speaking of Zillow …
Zillow, the last letter among home listers
Zillow has become, like Google (NASDAQ: GOOGL), synonymous with search -- in this case, for homebuyers and shoppers -- and Seattle-based Zillow Group (NASDAQ: ZG) has capitalized on that reach while expanding its own products and services. Most recently, this was through the Zillow Offers direct buying service -- which just expanded into its 25th market -- and now through the newly created Zillow Homes brokerage.
Zillow still makes serious coin by charging property managers to list on its rental site and real estate agents to advertise, as well as by connecting agents and buyers through its Premier Agent business. In fact, its Internet, Media & Technology segment alone accounted for about 26% of its adjusted EBITDA in the second quarter on $230.3 million in revenue.
Overall, total consolidated revenue grew 28% year over year to $768 million, helped along primarily by an increase in Zillow Offers resale volume. The company also ended the quarter with the most cash and investments in its history -- $3.5 billion.
After collapsing to below $19 a share on March 18, Zillow stock has recovered to around $119 a share, besting its 52-week high of $112.21. There's no dividend payout here, and they've been rare since the company went public in 2011, but keep in mind: This is no real estate investment trust (REIT).
Buy Zillow if you think it's got share price growth potential, which it well might, given its ability to not only exploit but define and grow its niche. Like Google (now Alphabet), ZG could spell profits in the years ahead.
Relying on RE/MAX and the traditional residential market
RE/MAX is one of the most recognizable brand names in residential real estate, and the surge in residential sales across the country has done nothing to hurt its business, either.
RE/MAX Holdings (NYSE: RMAX) is the Denver-based parent company of that brand and generates its living from franchise, broker and marketing fees, along with franchise sales. Since 1973, it's grown a business that features more than 135,000 agents in more than 110 countries and territories.
Already a dominant force in many residential markets, RE/MAX is reporting rapid growth of Motto Mortgage, a franchise it launched in 2016 as the first national mortgage brokerage franchise network of its kind.
But the pandemic has had its effect. Despite soaring home sales and prices, RE/MAX reported third-quarter revenue of $71.1 million and net income of $3.6 million, down from $71.5 million and $9.2 million in the year-ago quarter. Increased operating expenses, including agent recruitment and incentives, all affected that bottom line. Meantime it grew its total agent count 5.1% to 134,769 agents year over year and its total number of open Motto Mortgage franchises by 27.9% to 133 offices.
Plus, it paid a dividend in the third quarter. In fact, along with potential share price appreciation, RE/MAX carries some certainty of dividend payouts, regularly rewarding shareholders growing that quarterly payout from about $0.0625 beginning in 2014, not long after it went public, to now four straight quarters of $0.22 per share.
At a share price of $31.94 midday on Nov. 6, that's a yield of 2.71%, which isn't too bad. Again, this isn't a REIT, so the company is not obligated to shareholder payouts like that for tax purposes. RE/MAX fell as low as $14.40 a share this year and still has some running room to get back to its 52-week high of $40.78.
RE/MAX stock has been as high as the mid-$60s in 2017 and with that history of dividend payouts, a network of eager agents and brokers selling the franchise's brand, investment in enabling technologies for its moneymakers, and a promising foray into the mortgage brokerage business, there's optimism it could get back there again -- while paying some dividends along the way.
The Millionacres bottom line
D.R. Horton, Zillow, and RE/MAX share some common attributes. They're well-established leaders in niches they helped create: national homebuilding franchises, national real estate networks, and digital real estate marketing and sales.
They also aren't resting on their laurels, finding new ways to build value for their clients and themselves and for shareholders who believe that value could translate into growth on the stock exchanges, too.
For Zillow, that’s aggressively growing its direct sale options, for example, while D.R. Horton continues to strategically acquire smaller builders and forge strategic marketing partnerships with the likes of Zillow. Meanwhile, RE/MAX continues to empower agents with the tools to sell while building that sales force itself here and abroad. Each appears positioned for future growth and to be sustainable businesses in the next housing market downswing as well.