Markets

Homebuilding Market Bounces Back to New High: 5 Winners

The U.S. housing market has been on a tear over the past couple of months as a pandemic-triggered slowdown in home sales during spring pushed the home-buying season into summer. Be it new or existing home sales or homebuilder sentiment or housing starts, the home market has finally started looking up.

This means both homebuilders and buyers have started showing confidence in the economy once again, signaling that the worst of the economic downturn is probably over. Also, home-buying activity is getting another boost from record-low mortgage rates.

Home Market Rebounding

According to the National Association of Realtors (NAR), total existing-home sales, including single-family homes, townhomes, condominiums and co-ops, rose 24.7% month over month in July at a seasonally adjusted annual rate of 5.86 million units. This is also the sharpest monthly sales gain recorded since NAR began collecting housing data in 1968 and beat out June’s 20.7% increase. Compared to the same period last year, existing-home sales were up 8.7% from the seasonally adjusted rate of 5.39 million units.

Also, sales of new homes rose a sharp 13.8% in June to a seasonally adjusted annual rate of 776,000 units, the highest level since July 2007, according to the Commerce Department. The increase follows a 19.4% jump in May.

Moreover, homebuilder confidence in the newly built, single-family home market jumped 6 points to 78 in August on the National Association of Home Builders/Wells Fargo Housing Market Index. The index is now at the highest level in the 35-year history of the monthly series and matches the record it had set in December 1998. Anything above 50 is considered positive sentiment.

Construction of new homes too has been on the rise given the growing demand for new homes. In July, America’s homebuilders accelerated the most in nearly four years, surging 22.6% and recording the biggest gain since October 2016, according to data from the Census Bureau and the U.S. Department of Housing and Urban Development. Also, building permits in July rose 18.8% to a seasonally adjusted annual rate of 1,495,000, surpassing the consensus estimate of 1,333,000 and June’s revised figure of 1,258,000 units. Building permits issuance offers a gauge of residential construction activity in the upcoming month.

Supply Shortage & Other Factors Pushing Demand

Understandably, homebuilders are benefiting from the severe shortage of existing homes for sale. There were already fewer homes to meet demand before the pandemic, and now fewer homeowners are willing to list their homes for sale.

Many other factors are also helping home sales as states continue to relax stay-at-home restrictions. Coronavirus resulted in record job losses in April, and a collapse in manufacturing output and retail sales. People backed out from buying homes as they feared blocking their money by investing in property. However, U.S. consumer confidence and consumer spending started improving since May, indicating that life is somewhat going back to normal.

Moreover, home-buying activity is getting another boost from record-low mortgage rates which have dropped below 3% for a 30-year-fixed rate mortgage for the first time in nearly 50 years. Unless rates really break much higher, which is unlikely, the latest increase is unlikely to throw cold water on the strong demand for housing. Thus, new home sales are likely to get a boost in the coming days also.

Our Choices

The rise in new and existing home sales and homebuilding activity are indications that buyers are showing interest, with the U.S. economy gradually reopening up and people going back to work. In this opportune time to invest in homebuilding, we suggest five stocks with a Zacks Rank #1 (Strong Buy) that are likely to gain ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

D.R. Horton, Inc. DHI is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets.

The company’s expected earnings growth rate for the current year is 35.7%. The Zacks Consensus Estimate for current-year earnings has improved 24.1% over the past 60 days. 

MI Homes, Inc. MHO is one of the nation's leading builders of single-family homes. MI Homes serves a broad segment of the housing market, including first-time, move-up, luxury and empty-nester buyers. 

The company’s expected earnings growth rate for the current year is 36.7%. The Zacks Consensus Estimate for current-year earnings has improved 91.2% over the past 30 days. 

PulteGroup, Inc. PHM engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments — Homebuilding and Financial Services.

The company’s expected earnings growth rate for the current year is 22.1%. The Zacks Consensus Estimate for current-year earnings has improved 39.7% over the past 30 days. 

Meritage Homes Corporation MTH primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in the historically high-growth regions of the United States.

The company’s expected earnings growth rate for the current year is 42.8%. The Zacks Consensus Estimate for current-year earnings has improved 50.6% over the past 60 days. 

M.D.C. Holdings, Inc. MDC engages in homebuilding and financial service businesses in the United States. It is engaged in the construction, sale and related financing of residential housing and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, mid-Atlantic region, Las Vegas, Dallas and California metropolitan areas. 

The company’s expected earnings growth rate for the current year is 26.1%. The Zacks Consensus Estimate for current-year earnings has improved 56.9% over the past 60 days.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>


Click to get this free report

PulteGroup, Inc. (PHM): Free Stock Analysis Report

D.R. Horton, Inc. (DHI): Free Stock Analysis Report

Meritage Homes Corporation (MTH): Free Stock Analysis Report

M.D.C. Holdings, Inc. (MDC): Free Stock Analysis Report

MI Homes, Inc. (MHO): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More