Many unfortunate analysts have been burned trying to predict a deÂcisive turn in the housing market over the past few years, as perpetÂually falling real estate values and weak consumer confidence foreclose on a meaningful recovery.
However, home prices appear to have stabilized, giving the industry a shot of confidence. The S&P/Case- Shiller Index of prices in 20 metroÂpolitan areas rose 0.7 percent in April, beating expectations. Prices in all 20 cities were above their recent lows.
The rise in home prices has boostÂed three important housing marÂket indicators. New home starts and sales of both new and existing homes are posting a marked recovery so far this year. After a long period of pessimism, most analysts are finalÂly upgrading their ratings on a wide swath of housing-related stocks.
At the same time, government efÂforts to help homeowners are accelÂerating, allowing more borrowers to refinance or avoid foreclosure.
Uniformity of opinion doesn’t necessarily mean a real recovery is in the offing. Millions of people are still “underwater,” owing more on their homes than their homes are worth. And a major economic setÂback could reverse the recent uptick in housing prices.
However, as my colleague Chad Fraser pointed out in 3 Stocks That Will Benefit From a Housing Market Rebound, fundamentals of the real estate market are now the best they’ve been in almost four years, with momentum clearly shifting for the better. I’m taking this opporÂtunity to highlight housing stocks that will benefit from any rebound in the market.
While you are probably familÂiar with the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac, you may never have heard of Federal Agricultural Mortgage Corporation (AGM, Financial), otherwise known as FarmÂer Mac.
Just as Fannie and Freddie exist to create a robust secondary marÂket for residential real estate loans, Farmer Mac exists to help ensure that reasonably priced financing is available to America’s farmers and rural communities as well as to ruÂral utility companies.
Farmer Mac achieves this goal primarily by purchasing agriculturÂal loans from lenders and packaging those loans into mortgage-backed securities, many of which are guarÂanteed by the US Department of Agriculture (USDA).
The fact that it didn’t require federal bailout money during the fiÂnancial crisis is another key differÂence between Farmer Mac and its cousins. That’s not to say it didn’t require some assistance. In 2008, souring loans forced it to raise capiÂtal by selling $65 million in preÂferred stock to a network of private banks that rely on its services to offer affordable agricultural loans. This help was a far cry from the billions of dollars the government sank into the other GSEs.
While Fannie Mae and Freddie Mac continue to struggle, FarmÂer Mac has made a strong recovÂery over the past few years. In the first quarter of 2012, EPS surged by 18.6 percent over the same peÂriod last year, rising to $2.04 as net interest income bounced up by alÂmost a third.
Loan loss provisions have also been on the decline at Farmer Mac, as credit quality steadily improves. The 90-day delinquency rate in its core Farmer Mac I Portfolio of loans has fallen to just 1.2 percent of assets, while its overall 90-day rate across all of its assets has deÂclined to just 0.44 percent.
Asset quality improvement has been largely driven by elevated agÂricultural commodity prices—corn and wheat are currently trading near post-recession highs — and imÂproving farmland valuations. AcÂcording to USDA data, the averÂage cost of farmland has shot up by more than 30 percent over the past five years.
However, even as farmers’ funÂdamentals have improved, Farmer Mac largely has failed to keep up. The lender is currently trading at just half its book value per share and just 7.2 times its forward 2012 earnings. As of the first quarter, it had $975 million in cash despite a market capitalization of only $272 million.
In addition to its attractive valuÂation, Farmer Mac also pays out a 10-cent quarterly dividend. With a payout ratio of just 15.2 percent and plenty of cash on the books, the company is likely to be a rising dividend payer in the coming quarters.
However, home prices appear to have stabilized, giving the industry a shot of confidence. The S&P/Case- Shiller Index of prices in 20 metroÂpolitan areas rose 0.7 percent in April, beating expectations. Prices in all 20 cities were above their recent lows.
The rise in home prices has boostÂed three important housing marÂket indicators. New home starts and sales of both new and existing homes are posting a marked recovery so far this year. After a long period of pessimism, most analysts are finalÂly upgrading their ratings on a wide swath of housing-related stocks.
At the same time, government efÂforts to help homeowners are accelÂerating, allowing more borrowers to refinance or avoid foreclosure.
Uniformity of opinion doesn’t necessarily mean a real recovery is in the offing. Millions of people are still “underwater,” owing more on their homes than their homes are worth. And a major economic setÂback could reverse the recent uptick in housing prices.
However, as my colleague Chad Fraser pointed out in 3 Stocks That Will Benefit From a Housing Market Rebound, fundamentals of the real estate market are now the best they’ve been in almost four years, with momentum clearly shifting for the better. I’m taking this opporÂtunity to highlight housing stocks that will benefit from any rebound in the market.
While you are probably familÂiar with the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac, you may never have heard of Federal Agricultural Mortgage Corporation (AGM, Financial), otherwise known as FarmÂer Mac.
Just as Fannie and Freddie exist to create a robust secondary marÂket for residential real estate loans, Farmer Mac exists to help ensure that reasonably priced financing is available to America’s farmers and rural communities as well as to ruÂral utility companies.
Farmer Mac achieves this goal primarily by purchasing agriculturÂal loans from lenders and packaging those loans into mortgage-backed securities, many of which are guarÂanteed by the US Department of Agriculture (USDA).
The fact that it didn’t require federal bailout money during the fiÂnancial crisis is another key differÂence between Farmer Mac and its cousins. That’s not to say it didn’t require some assistance. In 2008, souring loans forced it to raise capiÂtal by selling $65 million in preÂferred stock to a network of private banks that rely on its services to offer affordable agricultural loans. This help was a far cry from the billions of dollars the government sank into the other GSEs.
While Fannie Mae and Freddie Mac continue to struggle, FarmÂer Mac has made a strong recovÂery over the past few years. In the first quarter of 2012, EPS surged by 18.6 percent over the same peÂriod last year, rising to $2.04 as net interest income bounced up by alÂmost a third.
Loan loss provisions have also been on the decline at Farmer Mac, as credit quality steadily improves. The 90-day delinquency rate in its core Farmer Mac I Portfolio of loans has fallen to just 1.2 percent of assets, while its overall 90-day rate across all of its assets has deÂclined to just 0.44 percent.
Asset quality improvement has been largely driven by elevated agÂricultural commodity prices—corn and wheat are currently trading near post-recession highs — and imÂproving farmland valuations. AcÂcording to USDA data, the averÂage cost of farmland has shot up by more than 30 percent over the past five years.
However, even as farmers’ funÂdamentals have improved, Farmer Mac largely has failed to keep up. The lender is currently trading at just half its book value per share and just 7.2 times its forward 2012 earnings. As of the first quarter, it had $975 million in cash despite a market capitalization of only $272 million.
In addition to its attractive valuÂation, Farmer Mac also pays out a 10-cent quarterly dividend. With a payout ratio of just 15.2 percent and plenty of cash on the books, the company is likely to be a rising dividend payer in the coming quarters.