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Meritage Homes Sees Solid Q3 Orders on Resilient Housing

Meritage Homes Corporation MTH has been experiencing unprecedented demand for homes, as is evident from 73% year-over-year growth in total orders for the July-August period. Importantly, the momentum continued in September as well.

As highlighted by Steven J. Hilton, chairman and chief executive officer of Meritage Homes, “Our entire organization is executing at a high level to deliver these record results, and we expect to continue to set new records.”

Key Takeaways

The company’s total orders for July and August 2020 grew 73% to 2,675 homes from 1,549 in the corresponding period of 2019. Average absorptions for the two months almost doubled from a year ago to approximately six homes per month per community, net of 13% order cancellations in 2020 and 17% in 2019.

Meritage Homes anticipates some early close-outs of its communities in late 2020 and early 2021 due to continued strong demand.

Also, in order to meet targets, the company expects to put a record number of new lots under control in the third quarter, in excess of 9,000 in total, aggregating to more than 17,000 lots for the first three quarters of 2020. This is expected to be close to the total number of lots it had acquired in aggregate during 2019 and 70% more than 10,000 lots in 2018.

Solid Housing Fundamentals

The overall homebuilding industry looks promising for second-half 2020 on ongoing traffic trends that indicate higher inclination of buyers. Notably, less than 3% mortgage rates and lower supply of existing homes for sales are somewhat offsetting headwinds like rising lumber costs. Also, buyers are now seeking homes in lower-density areas, thereby boosting new home construction in such regions.

Meritage Homes — a Zacks Rank #1 (Strong Buy) stock — and the Zacks Building Products - Home Builders industry have jumped 247.9% and 151.1%, respectively, over the past six months. This compares favorably with the Zacks Construction sector and S&P 500 Index’s respective rally of 88.1% and 45.6% in the time frame. You can see the complete list of today’s Zacks #1 Rank stocks here.


 

Focus on building homes for entry-level, first-time and move-up buyers has been yielding positive results. Notably, its LiVE.NOW product addresses the need for lower-priced homes to solve affordability problems for first-time/entry-level buyers. Also, strong brand presence, innovation and strategies relating to entry-level/first-move-up communities, along with strong housing industry prospects will likely drive the stock’s performance in the upcoming quarters.

Meanwhile, industry bigwigs like Lennar LEN, Toll Brothers TOL and D.R. Horton DHI have gained 161.5%, 240.8% and 144%, respectively, over the past six months.

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