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4 Housing Stocks to Buy as New Home Sales Rebound

Arpita Dutt

Last week, the Census Bureau and the Department of Housing and Urban Development jointly announced that sales of new single-family houses jumped significantly in September 2017. According to the data, 667,000 new single-family houses were sold in September, 18.9% above the revised rate of 561,000 in August and 17% above the year-ago estimate of 570,000. The September 2017 data also represents a recovery from the 3.3% decline in new home sales in August 2017.

Sales were specifically strong in the Northeast and South which recorded increases of 33.3% and 25.8%, respectively, while the Midwest and the West witnessed increases of 10.6% and 2.9%, respectively.

The improvement in new home sales data comes as a relief considering economists were actually expecting a drop.

Meanwhile, after recording declines for three months, existing-home sales were up slightly (0.7%) in September, as per the National Association of Realtors (NAR). However, NAR reported that pending home sales remained flat in September.

Factors at Play

The biggest challenge for the housing market is low supply. Factors like rising lumber and land costs as well as tight labor supply and shortage of land have been hitting inventory build-up. Limited listings and rising prices have also been keeping home buyers at bay with many postponing their search for the time-being.

However, strong employment, income growth, growing interest from first-time homebuyers, and low inventory of new and existing homes are some of the factors that should support sustained growth in housing demand. Moreover, the sales shortfall resulting from the hurricanes should be recovered in 2018.

4 Stocks to Consider

The Home Builders segment enjoys a good Zacks Industry Rank (top 18% out of 256 industries). The industry has outperformed the broader market year to date as well.

Here is a look at four top-ranked housing stocks.

NVR, Inc. NVR: NVR is one of the nation's largest homebuilding and mortgage banking companies. The company sells and constructs homes under three brand names: Ryan Homes, NVHomes and Heartland Homes. NVR’s homebuilding business covers twenty-nine metropolitan areas across fourteen states and Washington, D.C.

NVR, a Zacks Rank #1 (Strong Buy) stock has a pretty good earnings track record with the company surpassing expectations in each of the last four quarters with an average surprise of 17.2%. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 5.6% upward over the last 30 days. Estimated earnings growth for the current year is 41.3%. NVR stock has shot up 94.1% year to date, significantly outperforming the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home KBH: KB Home is one of the largest and most recognized homebuilding companies in the United States. The company sells and builds new homes primarily to first-time, move-up and active adult homebuyers with the focus being on first-time buyers, which represents the largest demand segment. Key markets include California on the West Coast, Arizona and Nevada in the Southwest, Colorado and Texas in the Central region and Florida and North Carolina in the Southeast.

The company has a strong earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 12.7%. A robust backlog and pent-up demand bode well for KB Home. Higher deliveries combined with an increasing average selling price are driving the company’s top-line growth. Meanwhile, increasing activity in the more affordable submarkets of the cities served by the company, especially from first-time and first move-up buyers, provides significant opportunity for KB Home. The company is also working on strengthening its Texas business with the restart of the Dallas operations, which is expected to be a meaningful contributor to results beginning the second half of 2018.

The Zacks Rank #2 (Buy) stock has seen the Zacks Consensus Estimate for current-year earnings being revised 2.9% upward over the last 30 days. Estimated earnings growth for the current year is 56.8%. Shares of KB Home have gained 71.1% year to date, significantly outperforming the industry’s 50.6% rally.

Toll Brothers, Inc. TOL: Toll Brothers is focused on the luxury homes market. The company builds and sells detached and attached homes in luxury residential communities located in affluent suburban markets that cater to move-up, empty-nester, active-adult, and second-home buyers. The company also has a presence in the urban infill markets.

Toll Brothers's results are being driven by the company’s broad geographic presence, diverse product offerings, unique brand, and robust demand among affluent buyers. Toll Brothers, a Zacks Rank #1 stock, has surpassed earnings estimates in three of the last four quarters with an average surprise of 8.5%. Estimated earnings growth for the current year is 45.9%.

Beazer Homes USA, Inc. BZH: Beazer Homes is among the country’s largest single-family homebuilders with a presence in Arizona, California, Delaware, Florida, Georgia, Indiana, Maryland, Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia. The company has a pretty good earnings track record having surpassed expectations in two of the last four quarters with an average surprise of 103.5%. Year to date, BZH’s shares are up 49.9%. Beazer Homes is a Zacks Rank #2 stock.

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