After experiencing a tough time in the last two months, sales of previously owned houses rebounded strongly in May 2019, rising in each of the four major U.S. regions. The Northeast witnessed the biggest increase last month.
Declining mortgage rates, moderating home prices, rising wages and dovish Federal Reserve stance helped the U.S. housing market regain its momentum.
Home Sales Data Encouraging
The National Association of Realtors’ (“NAR”) said on Friday that sales of existing homes, accounting for more than 90% of total U.S. home sales, increased 2.5% to a seasonally adjusted annual rate of 5.34 million units last month from 5.19 million in April. However, the metric decreased 1.1% from 5.4 million a year ago.
Notably, the recent data marked the second highest level since the beginning of 2019.
Regionally, sales in the Northeast, which account for the majority of existing home sales, rose 4.7% to 670,000 units, almost in line with the prior-year period. While sales in the Midwest advanced 3.4% in May, the same increased 1.8% in both South and West regions.
Median sales price in May rose 4.8% to $277,700 from the comparable year-ago period, marking the 87th straight month of year-over-year increase.
In May, total housing inventory grew 4.9% from the previous month and 2.7% from the prior-year period. It will take just 4.3 months to deplete the current supply of homes, up from 4.2 months in April as well as in May 2018.
First-time buyers accounted for 32% of sales in May, in line with the prior month but up from 31% recorded a year ago. Moreover, NAR revealed that the annual share of first-time buyers in 2018 was 33%.
The uptick in each of the abovementioned metrics reflects that buyers are excited to reap the benefits of favorable market conditions. Lawrence Yun, NAR’s chief economist, said “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”
Declining Mortgage Rates to Boost Sales
The overall housing industry has been booming over the past few months, backed by declining mortgage rates and strengthening builder’s confidence.
Although mortgage rates increased 2 points last week, it remained 73 points lower than a year ago. The average U.S. rate for a 30-year fixed mortgage was 3.84% for the week ending Jun 20, according to the latest Freddie Mac Primary Mortgage Market Survey. This marked an increase from the previous week’s 3.82% but was down from 4.57% a year ago. The recent decline in mortgage rates should benefit existing home sales in the near term.
Homebuilder confidence has also been growing since the beginning of the year. Though the metric fell two points in June from the previous month, as measured by the National Association of Home Builders’ Index, the gap does not reflect that homebuyer demand has stalled. As evident from increased refinance activity and loan amounts, consumers still have the willingness and capacity to purchase homes.
Meanwhile, investors remain optimistic that the Federal Reserve or Fed will cut federal funds interest rate in July. Recently, the Fed opted to keep the benchmark rate in a target range of 2.25-2.5%, with a vote of 9-1, indicating readiness to lower interest rates for the first time in more than a decade, citing “uncertainties” in the outlook. Notably, after raising federal funds rate nine times in three years, the Fed reversed its course last December on concerns related to slowing economy and U.S.-China trade war. This is indeed a major boon for the rate-sensitive housing market.
In a nutshell, improving economic conditions, rising disposable income and favorable demographic changes are likely to support demand in the near term.
4 Must-Buy Housing Stocks
There are plenty of reasons to be optimistic about the broader housing sector over both the short and the long term. However, picking winning stocks may be difficult.
With the help of the Zacks Stock Screener, we have zeroed in on four stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. A top Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translates into rapid price appreciation.
Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, make a solid investment choice. You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup, Inc. PHM primarily engages in the homebuilding business in the United States. The company currently sports a Zacks Rank #1 and has a VGM Score A. The Zacks Consensus Estimate for its current-year earnings has increased 0.9% over the past 60 days. The company is expected to see earnings growth of 6.8% over the next three to five years.
NVR, Inc. NVR, which operates as a homebuilder in the United States, also sports a Zacks Rank #1 and has a VGM Score A. The Zacks Consensus Estimate for its current-year earnings has remained stable over the past 60 days. The company's expected three-five-year earnings growth is 10.7%.
M/I Homes, Inc. MHO operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas, the United States. The company currently has a Zacks Rank #2 and has a VGM Score B. The Zacks Consensus Estimate for its current-year earnings has remained steady over the past 60 days.
Ethan Allen Interiors Inc. ETH, an interior designer, manufacturer and home furnishings retailer, currently carries a Zacks Rank #2. The stock has an expected earnings growth rate of 15% for the next three to five years. Moreover, the company currently has a VGM Score of A.
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