A series of dismal economic reports about America’s housing industry have been released recently. This has led to speculation that the economy is headed for yet another housing bubble. Having said that, the U.S. housing market is gaining strength, courtesy of steady demand and a business-friendly environment. Economists largely believe that this downturn is going to be momentary unlike what happened in 2008.
Further, robust labor market conditions, a hiring boom in the construction industry and increase in millennials will lead to improving conditions for the housing market. Under conditions, where the space is about to stage a rebound, investing in housing stocks seems prudent.
Fears of a 2008 Type Bubble Unfounded
Most of the housing data released this month has been disappointing. Housing Starts plummeted to 1,201000 in September from 1,268,000 in the previous month. Building permits declined to 1,241,000 from 1,249,000 in August. Further, construction spending, new home sales and existing home sales declined to 0.1%, 553,000 and 5.15 million units, respectively last month.
During the last economic crisis about 10 years ago, markets were overheated amid a glut of new houses. Further, subprime mortgage financing weighed heavily on the markets, resulting in a bump in speculative inventory. Taking a closer look at the current scenario, the housing industry is actually reeling under the pressure of extreme paucity of skilled labor amid rising prices of materials.
Meanwhile, the economy already expanded at a seasonally adjusted rate of 4.2% in the April-June quarter, per the Commerce Department. Meanwhile, the Labor Department stated that employers in the construction industry added 23,000 new construction jobs in September, while it has added 315,000 jobs over the past 12 months. It is, therefore, evident that the housing space is recovering and lackluster economic data will not mar the industry’s fortunes in the long run.
Metropolitan Demand and Baby Boomers to Propel Sector’s Growth
Rising wages and a higher number of job openings have resulted in increased demand for land ownership in the metropolitan areas of the country. These areas have witnessed a surge in housing demand, north of 3% on average annual basis.
Further, growth in population has also resulted in increased migration toward the metros. This trend is prevalent among millennials and baby boomers who are earning well and moving to bigger cities in pursuit of better lives. Such a trend has kept housing demand steady in these areas.
Also, pending home sales surged 0.5% in the last month after falling 1.9% in August. Per the National Association of Home Builders/Wells Fargo (“NAHB”), the monthly confidence index went up one point to 68% in October. The index’s three sub-gauges, current sales condition ticked up one point to 74, and expectations for sales over the next six months rose one point to 75. The gauge of buyer traffic witnessed the largest gain, up four points to 53.
4 Best Choices
Strong economic fundamentals and increase in millennial population has boosted the housing market in the recent past. The current bubble is largely momentary as it stems from labor shortage. Moreover, the hiring boom in construction sheds light on the fact that such impediments would not last long.
In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PGT Innovations, Inc. PGTI is a leading manufacturer and supplier of residential impact-resistant windows and doors.
The company is based out of North Venice, FL. The expected earnings growth rate for the current year is 77.75%. The Zacks Consensus Estimate for the current year has improved 9.1% over the past 90 days.
Armstrong Flooring, Inc. AFI is engaged in the design and manufacture of flooring solutions primarily in North America.
The company is based out of Lancaster, PA. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 1.1% over the past 60 days.
Fastenal Company FAST is the producer of bolts, nuts, screws, studs and related washers are used in manufactured products and building projects.
This company is based out of Winona, MN. The expected earnings growth rate for the current year is 33.31%. The Zacks Consensus Estimate for the current year has improved 0.8% over the past 60 days.
American Woodmark Corporation AMWD manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets in the United States.
This company is based out of Winchester, VA. The expected earnings growth rate for the current year is 45.42%. The Zacks Consensus Estimate for the current year has improved 1.1% over the past 60 days.
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