The Housing Boom’s Impact on Stocks

An Update on the Housing Market

The pandemic has fueled a surge in demand for houses. People are seeking out more room to work, study, and socialize at home. Low interest rates are also pushing mortgage payments down, spurring more people to buy houses. The most recent data from the National Association of REALTORS® shows that home sales in September 2020 were over 20% higher than in September 2019. Additionally, there are fewer houses on the market than there have been since 1982, and houses are selling much faster than normal. On average, houses are only staying on the market for 21 days.

The combination of a spike in demand and limited supply is causing the price of houses to climb. Median home prices recently hit a record of $311,800, about $40,000 higher than prices a year ago. Demand for homes in suburban areas and vacation towns has been particularly high. These trends are boosting shares of companies that facilitate home sales, like Zillow Group (ZG). Companies specializing in home improvement are also seeing growth.

Zillow Earnings Exemplify Housing Excitement

Zillow reported its third quarter earnings after markets closed yesterday, which hit $39.6 million. This beat expectations and set a new record for the company, exemplifying the upward trend in the housing space.

The company’s mortgage arm as well as its Zillow Offers business was strong. Additionally, the company has seen gains because it has been able to meet unique demands of homebuyers during the pandemic. Its Zillow 3D Home technology allows people to take virtual tours of homes owned by Zillow. The company also enabled virtual consultations with brokers and agents to help home buyers and sellers feel safe during the pandemic.

Following the announcement, Zillow’s shares climbed over 2% in after-hours trading. So far in 2020, the company’s shares have risen by 126.1%.

Home Improvement Shares Spike

As people buy houses and spend more time at home, they are flocking to buy furniture and home improvement supplies. The markets are reflecting these trends. Discount home goods retailer Overstock (OSTK) has seen its shares climb by more than 740% year-to-date. Shares of Wayfair (W), another furniture company, have risen by almost 200% year-to-date. Home Depot (HD) and Lowe’s (LOW) are up 30% and 40% respectively. Shares of paint retailer Sherman Williams (SHW) and pool supplier Poolcorp (POOL) are also on the rise.

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Pandemic Puts the Fast Food Breakfast Boom on Pause

A Pre-Pandemic Push for Breakfast Customers

Before the pandemic, many fast food restaurants saw breakfast as the most important meal of the day for growing their sales. Now,, as many people’s morning commutes consist of walking down the hallway instead of driving to an office, people are eating breakfast at home instead of picking it up at a restaurant on the way to work.

Between 2014 and 2019, breakfast traffic at fast food restaurants climbed by 7.7% and the amount of money customers spent on fast food breakfasts rose by 31%. Restaurant chains spent millions of dollars and hired thousands of workers to capture the attention of the breakfast crowd.

Wendy’s (WEN) introduced its Breakfast Baconator sandwich, McDonald’s (MCD) launched Doughnut Sticks as well as new and improved coffee. Right up until the pandemic, breakfast sales were climbing. During early March 2020, breakfast sales were 5% higher than they had been during the same period a year ago. Now, morning routines have been upended, and the breakfast boom seems to have come to a halt.

Breakfast Sales Still Lag Behind

In mid-April, breakfast transactions at fast food restaurants were 54% lower than during the same period a year earlier. This was worse than the 42% drop in overall transactions at fast food restaurants. Business has picked back up for fast food restaurants, thanks to drive through sales, curbside pickup, and other initiatives—but, breakfast sales still lag behind.

Fast food chains poured resources into luring customers away from cereal and toast at home, hoping they would develop habits of buying breakfast on the way to work which would last for years. Now, many restaurants are wondering if these efforts will be counteracted by people forming new habits while working from home.

Gains for the At-Home Breakfast Industry

While fast food chains are struggling to regain breakfast customers, companies that make at-home breakfast options are seeing growth. Kraft Heins (KHC) has seen strong performances from its breakfast-centric brands like Oscar Mayer bacon, Maxwell House coffee, and Philadelphia cream cheese. Cereal sales, which have lagged in recent years, are also up, benefitting companies like General Mills (GIS), Kellog’s (K), and Post (POST).

Consumers are also purchasing more breakfast-related kitchenware, like waffle irons and coffee makers, which suggests that people may stick to eating breakfast at home even once they return to the office. Heading into the winter, investors in the fast food landscape as well as in the at-home breakfast industry will have a close eye on customers’ morning habits.

Friday Fundings: REEF, The Protein Brewery, and Osome

REEF Sees New Possibilities for Parking Lots

REEF Technology just secured $700 million in a funding round led by Mubadala Capital and SoftBank (SFTBY). (Softbank is also an investor in SoFi.) REEF, which was originally named ParkJockey, started out building hardware, software, and management systems for parking lots. It still provides its flagship products, and the majority of its revenue still comes from parking lot business. However, it has recently branched out and now provides systems for cloud kitchens, healthcare clinics, and retail spaces.

REEF is finding ways to leverage parking lot space for other arms of its business. For example, the company sets up kitchen trailers in unused parking spots and partners with delivery services who need kitchen space close to its customers. REEF currently has a presence in over 4,800 parking garages and lots. With the new funding, it plans to operate in 10,000 locations.

The Protein Brewery Explores Plant-Based Proteins

The Protein Brewery, a Netherlands-based company founded less than a year ago, has secured €22 million in a Series A funding round led by Novo Holdings. As demand for plant-based meat and dairy alternatives surges, the startup is developing animal-free protein using fermentation technology. The company says its protein has an amino acid composition similar to meat as well as other nutritional benefits. It is also sustainable and low-cost.

The Protein Brewery is creating a powdered version of its product which can be added to foods like pasta, bread, and protein bars. It is also developing a wet version of the protein to be used in meat alternatives. The ingredient is on track to be granted regulatory approval in the US in 2021 and in Europe in 2022.

Osome Secures Funding for Machine Learning Business Solutions

Osome, an app that uses machine learning to help businesses with accounting, compliance, payroll, and other tasks, just raised $3 million in an extension of its seed round. XA Network and AltaIR Capital led the round. This brings the Singapore-based startup’s total funding to $8 million.

About 4,500 small and medium sized businesses across Singapore, Hong Kong, and the UK use Osome. COVID-19 lockdowns spurred a number of companies to sign up for Osome for the first time, because it provided ways to streamline remote-work. With its new funding, Osome plans to scale its operations and move into new markets. It is currently looking at Australia as a potential next destination.