PulteGroup Soars to 52-Week High on Record New Home Sales

PulteGroup, Inc. PHM touched a new 52-week high of $48.00 on Aug 25, 2020. The stock pulled back to end the trading session at $47.18, slightly declining from the previous day’s closing price. The uptick was probably due to record new home sales data for July that surpassed analysts’ expectation by 14.8%, signaling sturdy housing demand.

The housing market has been rallying over the past few months, after the government eased coronavirus-induced restrictions. In past three months, PulteGroup and other homebuilding stocks like D.R. Horton, Inc. DHI, Meritage Homes Corporation MTH and Toll Brothers, Inc. TOL have gained 29.4%, 28.3%, 35.5% and 39.5%, respectively.

PulteGroup — a Zacks Rank #1 (Strong Buy) stock — has outperformed the Zacks Building Products - Home Builders industry, Zacks Construction sector and S&P 500 Index’s 27.3%, 20.1% and 12.9% growth, respectively, over the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.


A Glance at a Few Recent Housing Stats

Record homebuilding data was registered in July, thereby boosting investors’ sentiments. On Aug 25, the U.S. Census Bureau and U.S. Department of Housing and Urban Development jointly reported that sales of new single-family home rose to 13.9% for July from a month ago and 36.3% year over year. Notably, this month-over-month gain marked the highest reading since December 2006.

July existing home sales also recorded an increase of 24.7% from a month ago, according to the National Association of Realtors. This marked the highest monthly gain in the survey’s history since 1968, buoyed by low mortgage rates. Total existing home sales — which include sales of single family homes, townhomes, condominiums and co-ops — grew 8.7% from July 2019 and topped analysts’ expectation by 8.3%.

On Aug 18, the Commerce Department reported that housing starts for July jumped 22.6% from the prior month and 23.4% from the last year. Also, it surpassed analysts’ expectation by 20.6%. Residential building permits — an indicator of future construction activity — was also up 9.4% year over year and 18.8% from a month ago.

Notably, these metrics are expected to rise further backed by strong builder confidence and heavy buyer traffic. U.S. homebuilders’ sentiment has risen to the highest level in the index’s 35-year history in August, per National Association of Home Builders, matching the December 1998 level. (Read more: Housing Solid as Confidence Skyrockets in August: 5 Picks)

Will it Gain Further?

The recent data is pointing toward housing market strength that can counter economic threats caused by the coronavirus outbreak like increasing mortgage delinquencies and rising lumber costs. Median sales prices of new homes sold were $330,600 for July, which grew 7.2% from the year-ago level. Average prices rose 4.8% from July 2019.

Although this price appreciation could push some buyers out of the market, builders are probably ready to take risks as Americans have crowded into the pricier market in recent times due to short supply of existing homes for sale. Also, buyers are now seeking homes in lower-density areas, giving a boost to new home construction in such regions. Housing inventory decreased 1.6% from June and 8.8% from the year-ago period. It would take just 4 months to deplete the current supply of homes, down from 4.6 months in June and 6 months in the prior year.

The 30-year fixed mortgage rate averaged 2.99% for the week ended Aug 20, down significantly on a year-over-year basis. In the year-ago period, mortgage rates were 3.55%. Declining mortgage rates and lower supply of existing homes for sales will aid PulteGroup as well as other homebuilders for the rest of 2020, offsetting the woes caused by the pandemic.

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