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Millennials to Drive US Housing Market in 2020: 5 Must Buys

Tirthankar Chakraborty

For most part of 2020, the U.S. housing market is expected to remain strong. After all, it’s the millennials that are anticipated to propel the housing market next year. Most of these individuals will turn 30 next year and consider buying their first home. In fact, millennials are expected to take half of all mortgages next year, surpassing both Generation X and Baby Boomers, per realtor.com.

The report states that demand for especially entry-level homes will pick up, thanks to millennials driving overall demand. And buyers will certainly benefit from almost flat home prices, which are predicted to increase only 0.8%. The report added that home prices may even decline in cities such as Dallas, Las Vegas, Miami, Chicago and San Francisco. This is, by the way, in complete contrast to what has happened this year. After all, the Case Shiller Home Price Index in the United States touched an all-time high of 218.27 this September, making it almost impossible for individuals to afford a home.

Nonetheless, mortgage rates are lower, which adds to the bullish sentiment. What’s more, rates on the 30-year fixed-rate mortgage for next year are expected to remain near historic low levels. Freddie Mac and Fannie Mae said that such rates will average around 3.6% to 3.7% through 2020. To top it, healthy domestic economic growth despite trade jitters and record low unemployment rate will boost disposable income, leading to higher demand for new homes next year.

The pace of U.S. economic expansion picked up in the third quarter of this year. Per the Bureau of Economic Analysis, the economy grew at an annualized rate of 2.1% in the three months ended Sep 30, versus the initial estimate of 1.9% and 2% in the second quarter. The unemployment rate, by the way, dropped to 3.5% from 3.6% last month — the lowest in a half-century.

Skeptics, in the meantime, may argue that the U.S. housing market may face tough times in 2020, the same way it did in 2005. However, unlike 2005, the risks of speculation have gone down, and questionable mortgages like no-documentation loans aren’t taking place this time around. Thus, it can be safely said that probability of a housing crash next year is limited.

5 Solid Buys

Given the aforesaid positives, investing in housing-related stocks that can make the most of the improved homebuilder sentiment next year seems judicious. We have, thus, selected five such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

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 company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 14.6% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, is expected to see earnings growth of 5.3% next year, while it has gained an encouraging 30.2% over the past five years.

NVR, Inc. NVR operates as a homebuilder in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 2.3% north over the past 60 days. The company, which is part of the Building Products - Home Builders industry, is expected to see earnings growth of 3.1% next year, while it has gained a superb 30.1% over the past five years.

PulteGroup, Inc. PHM primarily engages in the homebuilding business in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 3.5% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, is expected to see earnings growth of 10.2% next year, while it has gained a solid 25.6% over the past five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

D.R. Horton, Inc. DHI operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest and West regions of the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 6.3% over the past 60 days. The company, which is part of the Building Products - Home Builders industry, is expected to see earnings growth of 9.8% next year, while it has gained a promising 21.2% over the past five years.

RH RH operates as a retailer in home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased nearly 7% over the past 60 days. The company, which is part of the Retail - Home Furnishings industry, is expected to see earnings growth of 18% next year, while it has gained a solid 47.3% over the past five years.

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