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New Home Sales Near 9-Year High: 3 Homebuilders to Buy
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New home sales unexpectedly rose to an almost nine-year high in July as demand for new homes picks up in a recovering economy.
Numbers Speak of Strength
Data released by the U.S. Census Bureau and the Department of Housing and Urban Development on Aug 23 showed that sales of new single-family homes rose 12.4% to a seasonally adjusted annual rate of 6,54,000 units in July from a downwardly revised June rate of 5,82,000. The number was reportedly the highest since Oct 2007 and represents a 31.3% increase year over year.
The median sales price declined 0.5% year over year to $294,600 in the month. The average sales price climbed 4% to $355,800.
New home inventory for sale was 233,000 units at the end of July, down 2.9% from June end. This is a 4.3 month supply at the current sales pace, down from the preceding month. The convergence of healthy demand and low inventory levels is boosting new home sales; a trend that is likely to continue for some time.
The rest of the housing data released this month have been fairly upbeat, clearly indicating that the overall housing market remains in good shape. Housing starts increased 2.1% in July, a five-month high, according to data released on Aug 16.
Additionally, builders' confidence remains significantly high, indicating that the sector will thrive in the near future. The National Association of Home Builders (NAHB) reported that the home builder sentiment index (HMI) increased 2 points to 60 in August from a downwardly revised 58 in July.
However, the number of building permits — a gauge of future construction — slipped marginally in July.
Homebuilders Flourish
Shares of all major homebuilders were up following robust home sales data. PulteGroup, Inc. (PHM - Free Report) , D.R. Horton, Inc. (DHI - Free Report) and Lennar Corporation (LEN - Free Report) gained around 3% each on Aug 23. Higher gains were in store for KB Home (KBH - Free Report) which rose around 5% and Toll Brothers, Inc. (TOL - Free Report) that shot up around 9% following the announcement of its robust third-quarter fiscal 2016 results.
Homebuilders like Pulte, KB Home and Lennar reported better-than-expected second-quarter results, beating the respective Zacks Consensus Estimate for both earnings and sales. All homebuilders witnessed higher home sales as demand trends improved.
The housing market has done fairly well this year with demand for new and existing homes gaining from historically low interest rates, an improving job market with low unemployment, and income growth.
An improving economy, low interest rates, positive consumer confidence and a tight supply situation are also building up hopes on the sector’s outperformance in the second half of 2016.
3 Homebuilders for Your Portfolio
With the housing sector going from strength to strength, it makes sense to pick stocks from this space.
Pulte
The Atlanta-based homebuilder carries a Zacks Rank #1 (Strong Buy). Pulte’s share price has risen around 25% so far this year. The company has expected earnings growth of 24.7% for the current year and 12.42% for the next. Its earnings estimate for the current year improved 1.2% while that for 2017 moved up by 6.1% over the last 60 days.
Pulte delivered better-than-expected results in both the first and second quarters of 2016. Pulte's large-scale business along with its geographical/product diversity, consistently improving profitability and commitment toward higher returns while pursuing a more balanced capital allocation approach are encouraging. Importantly, Pulte announced the next phase of its value-creation strategy at the second quarter conference call. Pulte will lower land spend and instead use the extra cash flow to drive greater overhead leverage and increase share buyback activity which should drive earnings growth. We believe that Pulte will do well in the second half backed by the steadily improving housing market, a strong backlog position, focus on higher-return business and the recent Wieland acquisition.
Lennar
Lennar carries a Zacks Rank #2 (Buy). The company has expected earnings growth of 13.6% for the current year and 9.5% for the next year. Coupled with an impressive Zacks Rank, the company enjoys a favorable VGM score of ‘A’.
After outstanding operating results in fiscal 2015, this Miami, FL, homebuilder delivered strong results in the first half of 2016. It beat the Zacks Consensus Estimate for both earnings and sales in both the first and second quarters. The company is one of the best positioned homebuilders to capitalize on the housing recovery thanks to its diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage. Moreover, its ancillary platforms — Rialto, Multi-Family, FivePoint and Financial Services — are evolving. With the housing sector and the overall U.S. macro environment looking good, Lennar is well positioned for continued strength in the second half.
MDC Holdings Inc.
The Denver, CO based homebuilder has a Zacks Rank #1. The company’s share price has risen 3.5% year to date. Along with a good Zacks Rank, the company enjoys a favorable VGM score of ‘A’. The company has expected earnings growth of 21.9% for the current year and 15.03% for the next year. Its earnings estimate improved 7% for both 2016 and 2017 over the last 60 days.
Conclusion
Land and labor shortage is a valid concern for homebuilders as are tedious underwriting standards. And you can’t wish away competition that can at times get fierce or ignore cost inflation. Nonetheless, homebuilders in general are on a high at the moment given the improving demand trend.
So don’t miss out on our three stock choices that are superbly poised for growth.
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New Home Sales Near 9-Year High: 3 Homebuilders to Buy
New home sales unexpectedly rose to an almost nine-year high in July as demand for new homes picks up in a recovering economy.
Numbers Speak of Strength
Data released by the U.S. Census Bureau and the Department of Housing and Urban Development on Aug 23 showed that sales of new single-family homes rose 12.4% to a seasonally adjusted annual rate of 6,54,000 units in July from a downwardly revised June rate of 5,82,000. The number was reportedly the highest since Oct 2007 and represents a 31.3% increase year over year.
The median sales price declined 0.5% year over year to $294,600 in the month. The average sales price climbed 4% to $355,800.
New home inventory for sale was 233,000 units at the end of July, down 2.9% from June end. This is a 4.3 month supply at the current sales pace, down from the preceding month. The convergence of healthy demand and low inventory levels is boosting new home sales; a trend that is likely to continue for some time.
The rest of the housing data released this month have been fairly upbeat, clearly indicating that the overall housing market remains in good shape. Housing starts increased 2.1% in July, a five-month high, according to data released on Aug 16.
Additionally, builders' confidence remains significantly high, indicating that the sector will thrive in the near future. The National Association of Home Builders (NAHB) reported that the home builder sentiment index (HMI) increased 2 points to 60 in August from a downwardly revised 58 in July.
However, the number of building permits — a gauge of future construction — slipped marginally in July.
Homebuilders Flourish
Shares of all major homebuilders were up following robust home sales data. PulteGroup, Inc. (PHM - Free Report) , D.R. Horton, Inc. (DHI - Free Report) and Lennar Corporation (LEN - Free Report) gained around 3% each on Aug 23. Higher gains were in store for KB Home (KBH - Free Report) which rose around 5% and Toll Brothers, Inc. (TOL - Free Report) that shot up around 9% following the announcement of its robust third-quarter fiscal 2016 results.
Construction Sector Price Index
Construction Sector Price Index
Homebuilders like Pulte, KB Home and Lennar reported better-than-expected second-quarter results, beating the respective Zacks Consensus Estimate for both earnings and sales. All homebuilders witnessed higher home sales as demand trends improved.
The housing market has done fairly well this year with demand for new and existing homes gaining from historically low interest rates, an improving job market with low unemployment, and income growth.
An improving economy, low interest rates, positive consumer confidence and a tight supply situation are also building up hopes on the sector’s outperformance in the second half of 2016.
3 Homebuilders for Your Portfolio
With the housing sector going from strength to strength, it makes sense to pick stocks from this space.
Pulte
The Atlanta-based homebuilder carries a Zacks Rank #1 (Strong Buy). Pulte’s share price has risen around 25% so far this year. The company has expected earnings growth of 24.7% for the current year and 12.42% for the next. Its earnings estimate for the current year improved 1.2% while that for 2017 moved up by 6.1% over the last 60 days.
Pulte delivered better-than-expected results in both the first and second quarters of 2016. Pulte's large-scale business along with its geographical/product diversity, consistently improving profitability and commitment toward higher returns while pursuing a more balanced capital allocation approach are encouraging. Importantly, Pulte announced the next phase of its value-creation strategy at the second quarter conference call. Pulte will lower land spend and instead use the extra cash flow to drive greater overhead leverage and increase share buyback activity which should drive earnings growth. We believe that Pulte will do well in the second half backed by the steadily improving housing market, a strong backlog position, focus on higher-return business and the recent Wieland acquisition.
Lennar
Lennar carries a Zacks Rank #2 (Buy). The company has expected earnings growth of 13.6% for the current year and 9.5% for the next year. Coupled with an impressive Zacks Rank, the company enjoys a favorable VGM score of ‘A’.
After outstanding operating results in fiscal 2015, this Miami, FL, homebuilder delivered strong results in the first half of 2016. It beat the Zacks Consensus Estimate for both earnings and sales in both the first and second quarters. The company is one of the best positioned homebuilders to capitalize on the housing recovery thanks to its diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage. Moreover, its ancillary platforms — Rialto, Multi-Family, FivePoint and Financial Services — are evolving. With the housing sector and the overall U.S. macro environment looking good, Lennar is well positioned for continued strength in the second half.
MDC Holdings Inc.
The Denver, CO based homebuilder has a Zacks Rank #1. The company’s share price has risen 3.5% year to date. Along with a good Zacks Rank, the company enjoys a favorable VGM score of ‘A’. The company has expected earnings growth of 21.9% for the current year and 15.03% for the next year. Its earnings estimate improved 7% for both 2016 and 2017 over the last 60 days.
Conclusion
Land and labor shortage is a valid concern for homebuilders as are tedious underwriting standards. And you can’t wish away competition that can at times get fierce or ignore cost inflation. Nonetheless, homebuilders in general are on a high at the moment given the improving demand trend.
So don’t miss out on our three stock choices that are superbly poised for growth.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>