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U.S. Building Permits Hit Highest Level in 12 Years: 5 Picks

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The U.S. housing sector rebounded in October buoyed by a low mortgage rate and a fundamentally stable domestic economy, which is growing for the historically longest 11 years, albeit with some loss in pace. The housing starts marked the second-highest gain in October while building permits achieved the highest level in more than 12 years.  

Turnaround in the housing sector is important since it generates more than 3% of the U.S. GDP. The Fed has reduced benchmark interest rate by 75 basis points, which helped the mortgage rate remain low. According to mortgage finance agency Freddie Mae, the 30-year fixed mortgage rate is currently hovering around 3.75%, well below 4.94% in November 2018.

Housing Starts Rebound

On Nov 19, the Department of Commerce reported that housing starts increased 3.8% in October to a seasonally adjusted annual rate of 1.314 million units. The figure was in line with the consensus estimate and higher than the September’s revised data of 1.266 million units. Year over year, housing starts grew 8.5% in October. Moreover, October was the second best month for housing starts so far in 2019.

Notably, the National Association of Home Builders confidence index hit a 20-month high in October. Region wise, housing starts in October increased 17.6% in the West, 8.7% in the Midwest and 0.7% in the South. However, it plunged 21.9% in the Northeast.

Building Permits Skyrocket

Building permits for privately owned housing units advanced 5% to a rate of 1.461 million units in October. The figure was higher than the September’s revised data of 1.391 million units as well as the consensus estimate of 1.39 million units. Year over year, housing starts jumped 14.1% in October. Notably, October’s data was the highest in 12 and half years.

Impressive building permits were driven by the single-family housing segment, which increased 3.2%, reflecting its highest level since August 2007. Single-family homebuilding increased 2% to a rate of 936,000 units in October, the highest in nine months. Notably, this segment accounts for the largest share of the housing market.

Our Top Picks

At this stage, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank. We narrowed down our search to five such stocks that rallied in the past six months and still hold momentum.  Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the past six months.

 

M/I Homes Inc. (MHO - Free Report) operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas. It operates through the Midwest Homebuilding, Southern Homebuilding, Mid-Atlantic Homebuilding, and Financial Services segments.

The Zacks Rank #1 company has an expected earnings growth rate of 31.9% for the current year. The Zacks Consensus Estimate for the current year has moved up 14.6% over the last 30 days. The stock has jumped 50.9% in the past six months.

Meritage Homes Corp. (MTH - Free Report) designs and builds single-family homes in the United States. The company operates through two segments, Homebuilding and Financial Services. It acquires and develops land, and constructs, markets, and sells homes for first-time and first move-up buyers.

The Zacks Rank #1 company has an expected earnings growth rate of 1.8% for the current year. The Zacks Consensus Estimate for the current year has moved up 4.4% over the last 30 days. The stock has soared 38.6% in the past six months.

KB Home (KBH - Free Report) operates as a homebuilding company in the United States. The company operates in four segments: West Coast, Southwest, Central, and Southeast. It builds and sells attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, and active adult homebuyers.

The Zacks Rank #1 company has an expected earnings growth rate of 67.3% for the current year. The Zacks Consensus Estimate for the current year has moved 0.4% north over the last 30 days. The stock has surged 31% in the past six months.

D.R. Horton Inc. (DHI - Free Report) operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West regions in the United States. It constructs and sells single-family detached homes, and attached homes, such as town homes, duplexes and triplexes.

The Zacks Rank #2 company has an expected earnings growth rate of 9.8% for the current year. The Zacks Consensus Estimate for the current year has moved up 2.6% over the last 30 days. The stock has climbed 23.6% in the past six months.

NVR Inc. (NVR - Free Report) operates as a homebuilder in the United States. It primarily constructs and sells single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and Heartland Homes names.

The Zacks Rank #2 company has an expected earnings growth rate of 9.6% for the current year. The Zacks Consensus Estimate for the current year has moved up 2.3% over the last 30 days. The stock has rallied 10.5% in the past six months.

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