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Low Mortgage Rates Stimulate August New Home Sales: 4 Picks

Ankita Gupta

The struggling housing market is steadily gaining footing, thanks to historically low mortgage rates. After upbeat builder sentiment along with soaring housing starts and existing home sales August data, the latest new home sales data for the month echoes the same sentiment.

On Sep 25, the Commerce Department stated that sales of newly constructed single-family homes for August, accounting approximately 11.5% of total U.S. home sales, grew 7.1% from July to a seasonally adjusted annual rate of 713,000 units — the second-highest level this year. Notably, August sales beat the consensus forecast of 659,000 by 8.2%. and grew 18% from the year-ago period.

Declining mortgage rates, moderating home prices, rising wages and the Federal Reserve’s dovish stance are reinforcing the U.S. housing market.

Post the release of upbeat data, the Invesco Dynamic Building & Construction ETF (PKB) and iShares U.S. Home Construction ETF (ITB) gained 1.2% each, while the SPDR S&P Homebuilders ETF (XHB) increased 1%. Shares of notable homebuilders such as Hovnanian Enterprises, Inc. HOV, Beazer Homes USA, Inc. BZH, KB Homes KBH and Toll Brothers, Inc. TOL rallied 19.5%, 4.2%, 3% and 1.7%, respectively.

Recovery Stretches into August

Since the start of 2019, new-home sales data improved 6.4% despite being highly volatile. Median sales price for the month increased 7.5% to $328,400 from July and more than 2% a year ago.

Regionally, new houses sold were the highest in West with 16.5% increase in August. In the South, the metric advanced 6%. However, sales in the Midwest and Northeast tumbled 3% and 5.9%, respectively, from the July figure.

Again, the supply of new homes dropped 1.2% from the prior month to 326,000. Nonetheless, housing inventory increased 2.5% from a year ago. It would take just 5.5 months to deplete the current supply of homes, down from 5.9 months in July 2019 and 6.3 months in August 2018.

Homebuilders to Counter Challenges

The housing industry is highly sensitive to interest/mortgage rates fluctuations. Per the recent Freddie Mac Primary Mortgage Market Survey, 30-year fixed mortgage rate dropped 120 basis points over a year to an average rate of 3.73%.

The latest housing statistics — housing starts and building permits — rose an impressive 12.3% and 7.7% in August from July, respectively, the highest level since mid-2007. Moreover, existing home sales jumped to a 17-month high in the same month.

Although the housing space is caught in the year-long trade tussle between the United States and China and is facing shortage of land and skilled labor, August’s data has been quite a breather. Additionally, the Federal Reserve’s interest rate cut last week for the second time this year to mitigate an economic slowdown is fueling a trend of mortgage refinancing and thereby lending support to household spending.

4 Top Housing Picks

Rebounding home sales data clearly shows that an increasing number of buyers are expressing interest in purchasing homes. Also, solid builders’ sentiments index and upbeat housing starts make the outlook for the industry bullish.

Therefore, picking the right stocks from the Zacks Building Products - Home Builders industry will be a smart investment move at this point. This is where our Zacks Stock Screener comes in handy.

We have shortlisted a few construction stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and other relevant metrics. You can see the complete list of today’s Zacks #1 Rank stocks here.

Taylor Morrison Home Corporation TMHC: This public homebuilder designs, builds, and sells single and multi-family attached and detached homes, and develops lifestyle and master-planned communities.

The company currently sports a Zacks Rank #1 and a VGM Score of A. Earnings estimates for 2019 have moved up 4.5% over the past 60 days. Notably, the company’s earnings surpassed estimates in the trailing four quarters, with the average positive surprise being 41.8%.

NVR, Inc. NVR: Headquartered in Reston, VA, the company constructs and sells single-family detached homes, townhomes and condominium buildings.

It currently carries a Zacks Rank #2 and has a VGM Score of B. The company has a three-five year expected EPS growth rate of 10.7% and a solid earnings surprise history. It surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 20.4%. Notably, estimates for current-year earnings have moved 1.2% up in the past 30 days.

D.R. Horton, Inc. DHI: This Texas-based leading homebuilder currently carries a Zacks Rank #2 and has a VGM Score of B.

The company’s earnings estimates for 2019 have climbed 6.9% over the past 60 days. Also, it is expected to witness earnings growth of 11% in the long term.

Meritage Homes Corporation MTH: This leading national homebuilder primarily engages in the construction and sale of single-family houses, both in the entry-level and move-up markets.

The company currently carries a Zacks Rank #2 and a VGM Score of B. Earnings estimates for 2019 have climbed 6.9% over the past 60 days. Meanwhile, earnings are expected to grow 11% in three-five years.

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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
NVR, Inc. (NVR) : Free Stock Analysis Report
Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
Hovnanian Enterprises Inc (HOV) : Free Stock Analysis Report
Meritage Corporation (MTH) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
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