There's a Massive Stock Market Opportunity Right Now, and It Isn't AI: Here Are 3 Great Ways to Play It

Key Points

• Homeowners in the United States are sitting on $35 trillion in home equity, the highest level ever.

• Banks and mortgage originators could be big winners, as they were during the last low-rate environment.

• Home improvement retailers and building suppliers could see sales rise as people borrow for big projects.

• 10 stocks we like better than Home Depot ›

Most of the trillion-dollar investment opportunity headlines have to do with artificial intelligence, autonomous vehicles, Internet of Things, or other tech trends. And there's certainly a good reason they're getting so much attention.

However, there could be an even larger market opportunity hiding in plain sight. Homeowners in the United States are sitting on an all-time high $35 trillion in home equity right now, and most aren't willing to tap into it while interest rates remain stubbornly high.

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In recent quarters, Home Depot's (NYSE: HD) management has specifically cited homeowners holding off on big projects as a drag on sales, and these are often financed through home equity, just to name one example.

While there's no way to know for sure when the Federal Reserve might finally start lowering interest rates once again, most experts agree that the most likely direction for interest rates over the next few years will be lower. And this could lead to a multitrillion-dollar surge in homeowners' tapping into their home equity.

Image source: Getty Images.

What stocks could be the biggest winners?

If Americans start borrowing against the value of their homes again, there are several types of stocks that could win. Here are two categories of home equity winners and some of the top players in each space.

Banks and loan originators

The most obvious beneficiary of a surge in homeowners' tapping into their equity is the financial services companies who originate home equity loans and home equity lines of credit, or HELOCs.

Bank of America (NYSE: BAC) is one of the largest HELOCs lenders and could be a particularly big winner as rates fall and this type of financing surges in popularity. Plus, residential mortgage loans make up $118 billion on Bank of America's loan book, and this could surge if we see a refinancing boom.

Rocket Companies (NYSE: RKT) is another one to watch, as it offers HELOCs but standard refinancing loans (which can also be used to pull cash out of your home equity) have historically been its bread-and-butter, especially when rates were low. It offers a seamless, online experience that resonates with today's borrowers and has made Rocket the leading mortgage originator.

Home improvement retailers

I already mentioned Home Depot, and just as the massive home improvement retailer is seeing customers delaying big projects right now. Of course, many people pay for home renovations and other major projects -- such as installing a swimming pool -- with cash, but HELOCs are a solid alternative for those who aren't cash-rich. So, as interest rates fall, we could see the pent-up demand for major projects coming back into the market. Home Depot and fellow home improvement retail giant Lowe's (NYSE: LOW) could both see sales, especially to contractors, spike higher during a refinancing boom.

It isn't just the retailers that can benefit. Companies like Trex (NYSE: TREX) that produce building materials could be big winners. Trex is the clear leader in composite decking materials and sells its products through third-party retailers. But there was a clear influx of demand during the low-interest era, and we could certainly see that once again.

The bottom line

A falling-rate environment could create a massive opportunity for companies that are involved with home equity loans and lines of credit, cash-out refinancing loans, and even the retailers who are most likely to benefit from a surge in home equity activity.

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Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Bank of America and Rocket Companies. The Motley Fool has positions in and recommends Home Depot and Trex. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.