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5 Big Winners From Record-High Homebuilder Optimism

Tirthankar Chakraborty
·5 mins read

U.S. homebuilders are currently riding the highest wave of optimism about their businesses. According to the National Association of Home Builders/Wells Fargo Market Index (NAHB), a gauge of builder confidence in the newly built, single-family home market jumped 6 points to a reading of 78 in August, the highest on record in 35 years. The August number was better than analysts estimate of 74. Notably, the index reading above 50 indicates improvement in confidence. Lest we forget, the index had slipped below 50 in April and May.

 

What’s more, the index that measures sentiments regarding prospective buyer traffic improved 8 points to a record high of 65. Expectations about sales in the next six-month period also improved, with its index rising three points to 78. And the gauge that measures current single-family home sales climbed six points to 84. 

 

The housing market, nonetheless, has proven to be a bright spot in the economic rebound from the coronavirus-fueled downturn. Record-low mortgage rates fueled demand among homebuyers and subsequently improved homebuilder sentiment. 

 

Some may say that the 30-year fixed mortgage rate averaged 2.96% for the week ending Aug 13, up from 2.88% a week earlier. But still the 30-year mortgage rate is lesser than the year-ago rate of 3.6%.

 

And going forward, mortgage rates are widely expected to remain low since it is weighed down by a couple of factors amid the pandemic. Firstly, the 10-year US Treasury yield, which the mortgage rate closely follows, is almost near an all-time low as investors pile up safe-haven assets and steer clear of risky ones. Secondly, the slide in borrowing costs comes as the Fed kept its benchmark rates at ultra-low levels to stimulate the economy.

 

As the coronavirus outbreak continues to aggravate across the United States and several states have paused or rolled back plans to reopen their economies, the Fed reassured Americans about its promise to support the economy. As a result, the Fed kept its benchmark short-term interest rate within a range of 0% to 0.25%. It trimmed rates in mid-March as the pandemic made serious damage to the economy.

 

The Fed said “the path of the economy will depend significantly on the course of the virus.” The central bank added that “economic activity has picked up somewhat in recent months but remain well below their levels at the beginning of the year.”

5 Solid Buys

Given the aforesaid positives, investing in housing-related stocks that can make the most of the improvement in homebuilder sentiment amid relatively low mortgage rates this year seems judicious. NAHB Chairman Chuck Fowke added that “the demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs.” We have, thus, selected five such stocks that carry a Zacks Rank #1 (Strong 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. The company designs homes to appeal primarily to entry-level and first move-up home buyers. The Zacks Consensus Estimate for its current-year earnings has moved up more than 100% over the past 60 days. The company’s expected earnings growth rate for the current year is 11%.

 

PulteGroup, Inc. PHM primarily engages in the U.S. homebuilding business. The Zacks Consensus Estimate for its current-year earnings has risen 44.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 22.1%.

 

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 Zacks Consensus Estimate for its current-year earnings has moved up 22.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 33.6%.

 

M/I Homes, Inc. MHO operates as a builder of single-family homes in Ohio, Indiana, Illinois, Michigan, Minnesota, North Carolina, Florida, and Texas, the United States. The Zacks Consensus Estimate for its current-year earnings has moved up 91.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 36.7%.

 

Floor & Decor Holdings, Inc. FND operates as a multi-channel specialty retailer of hard surface flooring and related accessories. The Zacks Consensus Estimate for its current-year earnings has moved up 43.8% over the past 60 days. The company’s expected earnings growth rate for the current quarter is 40.8%.

Looking for Stocks with Skyrocketing Upside?

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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.   

 

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
 
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
 
MI Homes, Inc. (MHO) : Free Stock Analysis Report
 
Floor Decor Holdings, Inc. (FND) : Free Stock Analysis Report
 
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