First-time home buyer is back. How to trade it

Published Tue, Mar 31 201510:17 AM EDT

The first time home buyer is coming back big this spring as mortgage rates fall and rents increase, according to Wall Street research. Here's how to trade it. Susquehanna Group upgraded D.R. Horton on Monday to "buy," predicting that shares of the largest U.S. home builder, which also caters to lower income and first-time buyers, would rise by more than 20 percent during the next 12 months. "We believe we are in the nascent stages of a recovery in the first-time home buyer," wrote Susquehanna's Jack Micenko. "We see DHI as enjoying 'first mover' advantage on this front." The 30-year fixed mortgage rate fell to 3.69 percent last week, according to Freddie Mac. This comes as the yield on the 10-year Treasury, which tends to lead loan rates, fell below 2 percent. The average existing home price rose to $218,000 in February, close to the record of around $230,000 during the housing boom, according to Evercore ISI. A survey of apartment companies by the research firm last week also showed strong rent prices. Data on Tuesday morning showed the S & P/Case-Shiller Home Price 20-City Composite jumped 4.6 percent in January. Read More Home prices rose inJanuary: S & P/Case-Shiller Under those conditions, the potential buyer may be motivated to make a move on that first home for relief from high rents and to benefit from rising home equity. Stronger-than-expected pending home sales numbers Monday pushed home-builder stocks near bull market highs. "Homebuilders continue to look good with the group on the verge of breaking out and already making new relative highs," Strategas chart analyst Chris Verrone wrote in a note to clients Monday. Verrone singled out Lennar and Ryland Group as two names you would want to own here as the charts break out. Susquehanna also pointed out a regulator change that may boost the housing market and the financial interests of the first-home buyer: "Final mortgage insurer eligibility requirements (PMIERs), which establish revised capital standards for the mortgage insurance industry, will be released by the FHFA in coming weeks. In conjunction with these new capital rules, we expect GSE loan level pricing adjustments ... to be adjusted downward given a healthier mortgage insurance industry, and this should be a net positive for first-time home buyers. This will lower the cost of mortgages to a broader range of higher-quality (but not pristine) borrowers that have historically enjoyed greater access to mortgage credit than they do currently." —CNBC senior talent producer Michael Bloom contributed to this story.

D.R. Horton bargain home in Houston.

Source: D.R. Horton

The first time home buyer is coming back big this spring as mortgage rates fall and rents increase, according to Wall Street research.

Here's how to trade it.

Susquehanna Group upgraded D.R. Horton on Monday to "buy," predicting that shares of the largest U.S. home builder, which also caters to lower income and first-time buyers, would rise by more than 20 percent during the next 12 months.

"We believe we are in the nascent stages of a recovery in the first-time home buyer," wrote Susquehanna's Jack Micenko. "We see DHI as enjoying 'first mover' advantage on this front."

The 30-year fixed mortgage rate fell to 3.69 percent last week, according to Freddie Mac. This comes as the yield on the 10-year Treasury, which tends to lead loan rates, fell below 2 percent.