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3 Top Housing Picks as Builder Confidence Hits 5-Month High
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The housing market in the United States hit a roadblock recently after the Federal Reserve signaled that the central bank might not trim interest rates in the March policy meeting, while mortgage rates continue to edge up amid steady economic growth, a healthy labor market and elevated price pressures.
A March Fed rate cut is likely off the table since inflation hasn’t yet moved sustainably toward the central bank’s desired target of 2%. Needless to say, interest rate cuts reduce the cost of buying a house, which upsurges the demand for housing.
On the other hand, mortgage rates are inching up, with the 30-year fixed-rate mortgage averaging 6.77% as of Feb 15. It is up 13 basis points from the previous week. Now, higher mortgage rates lead to higher borrowing costs, thereby discouraging a potential buyer from purchasing a house due to higher monthly payments.
However, home-builder confidence surged in February since the housing industry expects the Fed to eventually cut interest rates later this year, which would bolster demand for homes. Homebuilders also expect mortgage rates to, sooner or later, drop and that could lead to more buyers entering the housing market amid pent-up demand.
The monthly confidence index of the National Association of Home Builders (NAHB) went up 4 points to 48 in February, its highest level since August. The home-builder confidence index rose for the third consecutive month and easily exceeded economists’ expectations of a reading of 46. The index was at 42, a year ago.
Homebuilders remain confident about present sales conditions. They are also hopeful about future sales, and expect an increase in traffic of potential buyers. Economic activity, by the way, has already improved in the housing market, with construction outlays increasing for the twelfth straight month in December.
Per the Commerce Department, construction spending increased 0.9% to $2.1 trillion in December as the government ramped up construction projects across the length and breadth of the country.
Toll Brothers builds single-family detached and attached home communities. TOL currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.2% over the past 60 days. TOL’s expected earnings growth rate for the next five-year period is 8%.
NVR is engaged in the construction and sale of single-family detached homes, townhomes, and condominium buildings. NVR currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 14.5% over the past 60 days. NVR’s expected earnings growth rate for the next five-year period is 4.4%.
Century Communities is a home building and construction company. CCS currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 17.1% over the past 60 days. CCS’s expected earnings growth rate for the current year is 24.4%.
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3 Top Housing Picks as Builder Confidence Hits 5-Month High
The housing market in the United States hit a roadblock recently after the Federal Reserve signaled that the central bank might not trim interest rates in the March policy meeting, while mortgage rates continue to edge up amid steady economic growth, a healthy labor market and elevated price pressures.
A March Fed rate cut is likely off the table since inflation hasn’t yet moved sustainably toward the central bank’s desired target of 2%. Needless to say, interest rate cuts reduce the cost of buying a house, which upsurges the demand for housing.
On the other hand, mortgage rates are inching up, with the 30-year fixed-rate mortgage averaging 6.77% as of Feb 15. It is up 13 basis points from the previous week. Now, higher mortgage rates lead to higher borrowing costs, thereby discouraging a potential buyer from purchasing a house due to higher monthly payments.
However, home-builder confidence surged in February since the housing industry expects the Fed to eventually cut interest rates later this year, which would bolster demand for homes. Homebuilders also expect mortgage rates to, sooner or later, drop and that could lead to more buyers entering the housing market amid pent-up demand.
The monthly confidence index of the National Association of Home Builders (NAHB) went up 4 points to 48 in February, its highest level since August. The home-builder confidence index rose for the third consecutive month and easily exceeded economists’ expectations of a reading of 46. The index was at 42, a year ago.
Homebuilders remain confident about present sales conditions. They are also hopeful about future sales, and expect an increase in traffic of potential buyers. Economic activity, by the way, has already improved in the housing market, with construction outlays increasing for the twelfth straight month in December.
Per the Commerce Department, construction spending increased 0.9% to $2.1 trillion in December as the government ramped up construction projects across the length and breadth of the country.
Thus, with the housing market warming up, it is judicious for investors to place their bets on sound home-builders such as Toll Brothers (TOL - Free Report) , NVR (NVR - Free Report) and Century Communities (CCS - Free Report) for handsome returns. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Toll Brothers builds single-family detached and attached home communities. TOL currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.2% over the past 60 days. TOL’s expected earnings growth rate for the next five-year period is 8%.
NVR is engaged in the construction and sale of single-family detached homes, townhomes, and condominium buildings. NVR currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 14.5% over the past 60 days. NVR’s expected earnings growth rate for the next five-year period is 4.4%.
Century Communities is a home building and construction company. CCS currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 17.1% over the past 60 days. CCS’s expected earnings growth rate for the current year is 24.4%.