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Existing Home Sales Hit Nine-Month High in October: 4 Winners

After a great summer, the U.S. homebuilding market continues to be on a roll, with home sales growing on higher demand. The homebuilding market hit a roadblock during the initial months of the pandemic but since then demand for homes has been high. This saw existing home sales rising to the highest level in nine months, according to the National Association of Realtors (“NAR”).

The positive trend has been continuing for quite some time now and is expect to stay as demand for homes has only increased over the past few months despite soaring raw materials and labor costs. This is likely to help stocks like Beazer Homes USA, Inc. BZH, TRI Pointe Group, Inc. TPH, Meritage Homes Corporation MTH and D.R. Horton, Inc. DHI in the near term.

Existing Home Sales Rise

An increasing number of Americans have been looking for new houses since the lockdown was lifted last year. This has been boosting demand, which has resulted in steady growth for the housing market. The NAR said on Nov 22 that existing home sales were a nine-month high in October.

Sales increased 0.8% to a seasonally adjusted annual rate of 6.34 million units last month after a solid 7% jump in September. Economists had predicted a decline of 2.6%.

October’s jump marks the second straight month of gains. Besides, existing home sales  have now hit its highest level since January.  The pace of sales in October was above the 5.64 million units sold in 2020 and 5.34 million units sold in 2019.

Of the total sales, 29% homes were bought by first-time buyers, up from 28% in September. Individual investors played a major role in pushing October’s sales. Higher sales by individual investors are likely because they were bought for rental purposes. Individual investors or second-home buyers accounted for 17% of the total sales.

Homebuilder Confidence on a High

The growing demand for new and existing homes has resulted in a steady growth in homebuilder sentiment. The NAHB/Wells Fargo Housing Market Index rose to 83 in November from 80 in October. This is the third straight month of increase, with homebuilder sentiment now having hit a six-month high.

Also, building permits grew 4% in October, reflecting the growing demand for homes. The rise in both home sales and builder confidence comes despite surging lumber prices and raw material costs. Also, labor costs are soaring. However, that hasn’t impacted demand much.

Our Choices

The jump in existing homes sales and a rise in homebuilder sentiment are indications that buyers are showing faith in the economy and are looking for homes. In this opportune time to invest in homebuilding, we suggest four stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) that are likely to gain ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA, Inc. designs, builds and sells single-family homes. The company designs homes to appeal primarily to entry-level and first move-up home buyers. BZH designs homes to appeal primarily to entry-level and first move-up home buyers. Beazer Homes’objective is to provide customers with homes that incorporate quality and value. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's home buyers.

Beazer Homes’ expected earnings growth rate for the current year is 23.7%. The Zacks Consensus Estimate for current-year earnings has improved 44% over the past 60 days.Shares of BZH have gained 14.2% in the past 30 days. Beazer Homeshas a Zacks Rank #1 (Strong Buy).

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

TRI Pointe Group’sexpected earnings growth rate for the current year is 80.2%. The Zacks Consensus Estimate for current-year earnings has improved 8% over the past 60 days. Shares of TPH have gained 6.7% in the past 30 days. TRI Pointe Group sports a Zacks Rank #1.

Meritage Homes Corporationis one of the leading designers and builders of single-family homes. MTHprimarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active-adult buyers in the historically high-growth regions of the United States. Meritage Homes operates as a holding company and has no independent assets or operations.

Meritage Homes Corporation’sexpected earnings growth rate for the current year is 74.6%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 30 days.  Shares of MTH have advanced 14% in the past 30 days. Meritage Homes Corporation has a Zacks Rank #2.

D.R. Horton, Inc. is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets.DHI’s operations are spread over 91 markets across 29 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States. Its houses are sold under the brand names D.R. Horton - America’s Builder, Emerald Homes, Express Homes and Freedom Homes.

D.R. Horton’s expected earnings growth rate for the current year is 24%. The Zacks Consensus Estimate for current-year earnings has improved 11.2% over the past 60 days. DHI’s shares have gained 14.9% in the past 30 days. D.R. Hortonhas a Zacks Rank #2.

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