Become an InsiderBank of America analyst Joe Lovallo says housing stocks still have a lot of room to rise, but 2021 might be more complicated than it looks for the sector.
Nine months into the pandemic, that's become a well-told story, and it's worked out very well for investors in companies like homebuilders and home improvement retailers and suppliers. But Bank of America equity research analyst John Lovallo argues that it's off base in a couple of important ways. That challenges the notion that city dwellers are abandoning cities to find homes that they'll renovate and fill with new furniture. That idea has helped home furnishing and improvement stocks flourish, but Lovallo says investors' faith in those knock-on effects might be a bit misplaced.
Some of those affordability concerns come from the threat of increased mortgage rates. His firm thinks the Federal Reserve may cut back on its purchases of mortgage-backed securities and buy more Treasury notes instead, which could put upward pressure on rates.