4 Stocks to Buy as Housing Market Shows Signs of Recovery
The U.S. homebuilding market is finally showing signs of rebounding after a steep decline over the past year owing to the Fed’s aggressive rate hike stance to tame inflation. Higher mortgage rates, which kept buyers away from purchasing homes, seem to have become the new normal.
Homebuilders’ confidence hit new lows past year, but people are once again buying new homes, prompting a rise in building permits and housing starts in recent times. Given this situation, it would be ideal to invest in homebuilding stocks as interest rate hikes have also finally come to a halt.
Building Permits, Housing Starts Increase
The Commerce Department said on Jun 20 that U.S. single-family homebuilding projects jumped in May to its highest level in three decades. Alongside, permits for future residential construction projects also climbed last month.
According to the report, housing starts surged 21.7% in May to a seasonally adjusted annual rate of 1.631 million units, hitting a 13-month high. However, the level achieved in April 2022 is still the highest since 2006.
May’s jump follows April’s downwardly revised 1.34 million units. Moreover, the 291,000 unit jump in May’s housing starts was the highest since 1990. Also, the 21.7% monthly jump in May was the biggest percentage gain since October 2016.
Single-family housing starts rose 18.5%, while multi-family starts jumped 28.1%.
Also, permits for future construction climbed 5.2% in May to hit its highest level since October 2022 at 1.491 million units. Building permits for single-family homes jumped 4.8%, while multi-family permits climbed 7.8%.
The housing market’s rebound comes as the Fed finally paused its interest rate hikes in June after 10 straight increases. Higher mortgage rates had been compelling buyers to stay away from new home purchases.
However, buyers are finally adapting to the higher mortgage rates. Moreover, a halt in interest rate hikes should lift their sentiment and boost home sales.
On Monday, a survey revealed that the National Association of Home Builders/Wells Fargo Housing Market Index for June surpassed the midpoint threshold of 50. This is the first time it has reached this level since July 2022.
The rise in the index can be attributed to a shortage of existing homes available for sale, which has boosted demand for new construction. Notably, the index has experienced a substantial recovery, increasing by 77% since December.
Also, the Commerce Department said earlier this month that spending on construction projects jumped a solid 1.2% in April. This was driven by a 0.5% rise in spending on residential construction projects.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank that are poised to gain from the rise in spending on construction projects. We narrowed down our search to four such stocks, each currently carrying either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Beazer Homes USA, Inc. BZH designs, builds and sells single-family homes. BZH designs homes to appeal primarily to entry-level and first move-up home buyers. Beazer Homes’objective is to provide customers with homes that incorporate quality and value.
Beazer Homes’ expected earnings growth rate for next year is 7.6%. The Zacks Consensus Estimate for current-year earnings has improved 11% over the past 60 days. BZH presently sports a Zacks Rank #1.
Tri Pointe Homes, Inc. TPH is involved in the design, construction and sale of single-family homes. TPH’s operating portfolio includes Maracay Homes in Arizona; Pardee Homes in California and Nevada; Quadrant Homes in Washington; Trendmaker Homes in Texas; TRI Pointe Homes in California and Colorado; and Winchester Homes in Maryland and Virginia.
Tri Pointe Homes’ expected earnings growth rate for next year is 16.3%. The Zacks Consensus Estimate for current-year earnings has improved 8.9% over the past 60 days. TPH currently has a Zacks Rank #2.
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. DHI’s operations are spread across 110 markets in 33 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States.
D.R. Horton’s expected earnings growth rate for next year is 4.1%. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the past 60 days. DHI presently has a Zacks Rank #2.
Lennar Corporation LEN is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar Corporation’s expected earnings growth rate for next year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. LEN presently carries a Zacks Rank #1.
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Lennar Corporation (LEN) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
Tri Pointe Homes Inc. (TPH) : Free Stock Analysis Report
