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6 Great Home Building Stocks to Maximize Your Gains

The pandemic has been an unexpected boon to the homebuilding industry, with people scrambling to find places that they consider better suited for social distancing and operating from home.

But that’s just one of the drivers. Equally strong, also related to the pandemic, is the fact that more and more companies are looking at working from home as a permanent mode of operation. This could be the first step toward decongestion of thickly populated areas, where home prices are so high that many people have to make do with rented accommodation.

Also, with home operation a new normal now, millennials looking to settle down but priced out of the locations where they work in, can finally take the plunge. They can finally buy a home where they can afford it since they don’t have to suffer the commute.

The low interest rates also make homes more affordable, thus pushing demand.

As a result, this is, today, a sellers’ market.

The typical new U.S. home sold in 16 days in September, down from 17 days in August and 28 days a year ago. Entry-level and mid-market homes sold the fastest, at 14 days and 16 days, respectively. Even the most expensive homes sold in 33 days, down from 47 days last September. [Zillow]

However, homebuilders have their share of challenges with land and labor shortage, rising lumber prices and pandemic-related delays in project completion. Wildfires and hurricanes in September are also doing their bit. So homebuilders are selling more homes than they can build, thus depleting inventories. For-sale inventory of new homes nationwide fell 1.2% in the week ended on Oct 10 (this is down 36.4% from the comparable week last year).

The situation is similar on the side of existing home sales as well, which is how most buyers typically buy their homes. The National Association of Realtors (NAR) estimates that existing home sales rose 2.4% in September, the highest rate since Dec 2006.

However, the number of homes for sale is half of what was available back then. Since existing homes sold at the fast rate ever (22 days) in August, inventories were pushed down 18.6% year over year, going into September (more NAR September data is due on Oct 22).

The declining inventories across existing and new homes have sent prices up. New home prices were up 2.2% from June to September, the largest quarterly increase since October 2013, and up 5.8% year-over-year. Existing home prices jumped 11.4% in August.

As a result, the big question before us today is the hit to affordability and how much more the market can bear.

The Zillow Market Pulse from Oct 19 says that mortgage applications dipped 5% in September. But this may not be too big a deal considering that August was such a strong month (and the likely peak this year). Moreover, mortgage applications are up 38% from Sep 2019.

The Market Pulse also quotes the National Association of Home Builders’ (NAHB) Housing Market Index (an indicator of homebuilder confidence), which rose two points in October to a record 85. That’s up 52 points from April.

Given the continued strength in the market well into the fall and the new selling season coming up in the spring of 2021, the industry should remain attractive for a while now. It’s therefore a good idea to keep buying homebuilding stocks. 

The Zacks-classified Building Products - Home Builders industry has a Zacks industry rank of #6, which is in the top 2% of Zacks-classified industries. The industry has appreciated 37.9% year to date compared to 9.1% for the S&P 500.

 

M.D.C. Holdings, Inc. MDC

Zacks Rank #1 (Strong Buy).

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 increased 5 cents 7 days ago.

 

Meritage Homes Corp. MTH

Zacks Rank #1

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 increased 18 cents 7 days ago.

 

PulteGroup, Inc. PHM

Zacks Rank #1

Value Score B

Growth Score B

The Zacks Consensus Estimate for 2020 increased 3 cents 7 days ago.

 

TRI Pointe Group, Inc. TPH

Zacks Rank #1 (Strong Buy).

Value Score B

Growth Score A

The Zacks Consensus Estimate for 2020 is unchanged in the last 7 days.

 

Taylor Morrison Home Corp. TMHC

Zacks Rank #1

Value Score B

Growth Score B

The Zacks Consensus for 2020 remains unchanged but for 2021, it is up 28 cents in the last 7 days.

 

D.R. Horton, Inc. DHI

Zacks Rank #2

Value Score B

Growth Score A

The Zacks Consensus for 2020 is up a penny but for 2021, it is up 9 cents in the last 7 days.

 

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

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PulteGroup, Inc. (PHM): Free Stock Analysis Report
 
TRI Pointe Group, Inc. (TPH): Free Stock Analysis Report
 
D.R. Horton, Inc. (DHI): Free Stock Analysis Report
 
Meritage Homes Corporation (MTH): Free Stock Analysis Report
 
M.D.C. Holdings, Inc. (MDC): Free Stock Analysis Report
 
Taylor Morrison Home Corporation (TMHC): Free Stock Analysis Report
 
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