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New Home Sales Surge in May: 5 Stocks to Buy

Ritujay Ghosh
·5 mins read

Sales of new homes in the United States surprisingly rose 16.6% in May, as homebuyers rushed to the housing market inspired by record-low mortgage rates. This is also an indication that the worst may be over and the economy has finally started to stand on its feet.

The coronavirus pandemic had kept millions at home for over two months and shut business, which deeply impacted the homebuilding industry. However, with the economy now reopening, it is likely that buyers will once again flood the housing market.

New Home Sales Jump in May

Sales of new single-family home jumped a robust 16.6% in May to a seasonally adjusted annual rate of 676,000 units, according to new data reported by the Census Bureau on Jun 23. Also, May sales were almost 13% higher than a year ago.

The median price of a new home rose 4.9% to $317,900 in May after falling by 8.7% in April. The drop was attributed to heavy discounting by builders amid coronavirus-led shutdowns.

Purchases in the South, the largest housing market in the country jumped 15.2% in May, registering a seven-month high, while sales in the West surged a whopping 29%, the fastest pace in three months. May’s jump also marks a rebound from a three-month decline ending April and may be an indication that the country’s housing market may have just started recovering.

Low Mortgage Rate to Aid Home Sales

The surprise jump in new home sales comes just a day after the country reported a 9.7% plunge in May sales of existing homes. However, the surge in May sales of new homes is an indication that the worst is over and people are once again regaining confidence.

Also, sales are likely to improve in the coming months given that applications for home loans surged to an 11-year high in recent weeks on record-low mortgage rates. The surge in purchase applications comes alongside data showing a record gain of 2.5 million net new jobs over the month of May as Americans returned to work following months of coronavirus lockdown orders and shuttered businesses and factories.

Low mortgage rates are likely to please home buyers and make them rush to the housing market. Also, data last week showed a sharp rebound in building permits in May. Moreover, home sales should bounce on pent-up demand following the shutdown of the economy starting in March.

Our Choices

Lennar Corporation LEN is engaged in homebuilding and financial services in the United States. The company’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.

The company’s expected earnings growth rate for the current year is 10.6%. The Zacks Consensus Estimate for current-year earnings has improved 17.2% over the past 60 days. Its shares have advanced 108.5% in the past three months. Lennar Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TRI Pointe Group, Inc. TPH is involved in the design, construction and sale of single-family homes. The company'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. 

The company’s expected earnings growth rate for next year is 21%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days. Its shares have advanced 112.4% in the past three months. TRI Pointe sports a Zacks Rank #1.

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 company’s expected earnings growth rate for next year is 32.9%. The Zacks Consensus Estimate for current-year earnings has improved 7.7% over the past 60 days. Its shares have advanced 105.3% in the past three months. Beazer Homes has a Zacks Rank #2.

Meritage Homes Corporation MTH primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.

The company’s expected earnings growth rate for next year is 5.4%. The Zacks Consensus Estimate for current-year earnings has improved 17.7% over the past 60 days. Its shares have advanced 161.5% in the past three months. Meritage Homeshas a Zacks Rank #2.

NVR, Inc. NVR is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. 

The company’s expected earnings growth rate for next year is 8%. The Zacks Consensus Estimate for current-year earnings has improved 23% over the past 60 days. Its shares have advanced 50.4% in the past three months. NVR holds a Zacks Rank #2.

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