The U.S. housing market remains an exception even during the coronavirus pandemic slump. Homebuilders are seeing strong demand for single-family home and record-low mortgage rates lend additional support to buyers. A recent report by the Commerce Department indicated a spike in housing starts in October. And National Association of Home Builders and Wells Fargo’s home builder confidence index also hit a record high in November. Under such circumstances, investing in homebuilding stocks seems prudent.
Housing Starts Jump Higher Than Expected
According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development report on Nov 18, housing startsrose 4.9% to a seasonally adjusted annual rate of 1.530 million unitsin October, surpassing the consensus estimate of 1.461 million units and September’s revised figure of 1.459 million units. Further, the report states that single-family housing starts grew at a rate of 1,179,000, which is a 6.4% increase from the revised September figure of 1,108,000. Additionally, building permits in October were in line with September’s revised figure of 1.545 million units. However, the parameter saw a 2.8% jump from October 2019’s 1.503 million units.
Even as the pandemic continues to wreak havoc across the globe, homebuilders’ sentiments keep jumping to record highs with buyers hunting for houses in lower density localities and bracingthe new normalwork-from-home trend. Recently, homebuilders are witnessing a surge in demand while supply remains tight. According to an article by Housingwire, “The National Association of Home Builders and Wells Fargo Housing Market Index, measuring builder confidence, rose five points to 90 in November.” The index that measures the builder perceptions of current single-family home sales and sales expectations for the coming six months have hit its highest level in November and the third record-high in 35 years.
NAHB Chairman Chuck Fowke said that the “historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis.”
Low Mortgage Rate Continues to Boost Housing Space
A record-low mortgage rate has supported the shift to suburbs due to the pandemic. With the Federal Reserve’s rapid rate cuts to prop up the U.S. economy, interest rate now stands near zero (0.00–0.25%), as of Mar 15. And with the pandemic still hindering plans of economic rebound, the policymaker plans to keep rates unchanged, even through 2021. This also impacts mortgage rates and pushed the borrowing cost to historic low level.
5 Top Picks
Despite the consistent economic turbulence due to the pandemic, ahistorically-low borrowing cost, soaring demand for single-family homes versus shortage in supply is fueling the U.S. housing market. Given such a scenario, we have shortlisted five homebuilder stocks that can return well on investment.
Beazer Homes USA, Inc. BZH designs, constructs, and sells single-family and multi-family homes under the Beazer Homes, Gatherings, and Choice Plans names. The company’s expected earnings growth rate for the current quarter is more than 100% compared with the Zacks Building Products - Home Builders industry’s projected earnings growth of nearly 31%.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s current-year earnings has been revised nearly 52% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
NVR, Inc. NVR constructs and sells single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and Heartland Homes names. The company that belongs to Building Products - Home Builders has an expected earnings growth rate of 18.8% forthe current quarter. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 4.7% upward over the past 60 days.
Century Communities, Inc. CCS engages in the design, development, construction, marketing, and sale of single-family attached and detached homes. The company that belongs to Building Products - Home Builders has an expected earnings growth rate of 12.7% in the current quarter. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 17.5% upward over the past 60 days.
PulteGroup, Inc. PHM acquires and develops land primarily for residential purposes; and constructs housing on such land. The company that belongs to Building Products - Home Builders has an expected earnings growth rate of 41.3% in the currentyear. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 15.5% upward over the past 60 days.
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 company that belongs to Building Products - Home Builders has an expected earnings growth rate of 82.3% forthe currentyear. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current-year earnings has been revised 33.3% upward over the past 60 days.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
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