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Why Real Estate Stocks Got Rocked Today

By Joe Tenebruso - Mar 16, 2020 at 4:01PM

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The COVID-19 pandemic could lead to a major downturn in the U.S. housing market.

What happened

Many housing-related stocks plunged on Monday as investors grew more fearful that COVID-19 -- the disease caused by the novel coronavirus -- and its related economic fallout would result in a sharp decline in home sales. 

Shares of Zillow (Z 4.16%) (ZG 4.14%), Redfin (RDFN 6.81%), Meritage Homes (MTH 3.46%), PulteGroup (PHM 3.55%), Lennar (LEN 3.74%), and Home Depot (HD 1.67%) all fell approximately 20% or more. 

So what

Despite massive stimulus measures by the Federal Reserve, it's looking increasingly likely that the U.S. economy will fall into a recession in the coming months. As the number of confirmed cases of COVID-19 surge, the federal government has enacted travel bans, while state and local governments have ordered many businesses to close. Many people will see their income reduced as a result, and some will even lose their jobs. Financial markets have plunged in response, further reducing many Americans' wealth.

Amid this difficult economic backdrop, home sales are likely to fall in the key spring selling season, and perhaps throughout the remainder of the year.

Two miniature houses in front of a declining chart.

Real estate stocks plummeted on Monday on fears of a potential plunge in new-home sales. Image source: Getty Images.

Now what

With millions of Americans worried about getting sick, losing their jobs, and seeing their investments plunge in value, there's no doubt that many people will choose to forgo purchasing a home in 2020. As such, investors should brace for a potentially significant decline in sales of new homes and housing-related products this year.

This will likely dent the sales and profits of real estate brokerages like Redfin; housing-related lead-generation sites like Zillow; homebuilders such as Meritage Homes, PulteGroup, and Lennar; and home improvement retailers like Home Depot. Less demand for new homes could also depress housing prices, thereby furthering the coronavirus-induced negative wealth cycle for many Americans.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$283.73 (1.67%) $4.65
Lennar Corporation Stock Quote
Lennar Corporation
LEN
$77.39 (3.74%) $2.79
PulteGroup, Inc. Stock Quote
PulteGroup, Inc.
PHM
$43.72 (3.55%) $1.50
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
ZG
$35.20 (4.14%) $1.40
Meritage Homes Corporation Stock Quote
Meritage Homes Corporation
MTH
$79.86 (3.46%) $2.67
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
Z
$35.07 (4.16%) $1.40
Redfin Corporation Stock Quote
Redfin Corporation
RDFN
$9.57 (6.81%) $0.61

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