Anticipating a high demand for homes, a research team at JPMorgan Chase is bullish on several real estate stocks and investment trusts, according to a new analysis.

Investors may want to take a close look at stocks for certain large and mid-sized homebuilders as new builds make up a greater share of home inventory over the next half-decade, according to a report from JP Morgan Chase.

The investment bank was bullish on the home market in general, according to a research team in a new report. They identified more than a dozen stocks in U.S. real estate companies that could be particularly undervalued, according to a summary of the report’s findings by Business Insider.

“Further runway exists in part because of higher starts levels over the next five years following an unprecedented 12-year period of single-family starts below 1 million,” the JPMorgan group said in the report.

Major homebuilders D.R. Horton, Lennar and Pulte were rated as particularly good buys as the companies have scooped up land, navigated material-goods shortages and positioned themselves for a larger output in the future.

But the research team also highlighted more mid-sized builders such as Taylor Morrison, Century Communities, MDC and Green Brick Partners as good values for investors.

Part of the research group’s optimism lies in an expectation that home demand will remain strong well into 2022 and beyond. 

UDR Inc., trust that invests in apartments, was considered a top pick for investors, according to the report. Similar real-estate investment trusts were labeled a top idea by the group, with AvalonBay Communities, American Homes 4 Rent and Invitation Homes all standing to potentially improve their earnings.

Home-improvement and home-security companies also stand to capitalize as more first-time homebuyers move into their homes, JPMorgan’s team said. 

JPMorgan analyst Mike Rehaut listed several such home products company stocks as potentially good buys, including large-cap options Whirlpool, Mohawk Industries and Fortune Brands Home & Security. He also recommended keeping an eye on smaller companies in the same space, such as Masonite International and Installed Building Products.

Because of the strong demand for homes, which is expected to continue, the research team said there was little reason to believe the housing market is in the midst of a bubble similar to the one that preceded the Great Recession.

Mortgage lenders are also being smarter about how much they’re lending, and to whom. The typical borrower is more qualified today than they were before the last crisis.

The report wasn’t entirely rosy, however.

The eroding affordability of housing could be a factor that drives prices higher in other parts of the economy, the report said.

“It remains to be seen whether the increase in demand for all kinds of housing nationwide will cause a one-off price change or a persistent change in inflation rates,” the report reads. “If owners’ equivalent rent is truly lagged then inflation can be more real than what is in the headlines.”

The rise in the share of non-banks handing out mortgages could also increase competition that pressures lenders into giving out riskier loans in the future, the team said. The more risk they take on, the less stable the system could become.

Email Daniel Houston

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