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Homebuilding Market on Solid Ground: 4 Stocks to Buy

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The homebuilding market continues to thrive, courtesy of soaring demand for new single-family homes. New home sales once again jumped in December to end the year on a positive note.

The trend is likely to continue, given that people have been looking for new homes, despite the ongoing pandemic. The rise in residential construction has also supported the overall construction sector for months now. Given this situation, stocks like Beazer Homes USA, Inc. ((BZH - Free Report) ),Toll Brothers (TOL - Free Report) , KB Home (KBH - Free Report) and Lennar Corporation (LEN - Free Report) are likely to benefit in the near term.

New Home Sales Soar 

The Commerce Department said on Jan 26 that the sale of new homes in the United States rose 11.9% on a month-over-month basis. New home sales came in at 811,000 units at a seasonally adjusted annual rate compared to November’s revised rate of 725,000.

Also, new home sales reached a nine-month high in December, indicating the strong demand for homes. One of the main reasons for December’s rise was low prices as people flocked to buy new homes, anticipating that the Fed would increase interest rates this year, which could further escalate home prices.

The Census Bureau and the Department of Housing and Urban Development, which came up with the new-home sales report, shows that median prices of homes jumped 3.4% to $377,700 in December from a year earlier. However, even then, people are not shying away from shelling out more money to buy new homes, a trend seen almost throughout 2021.

New home sales account for 10% of the total market and are calculated when contracts are signed.

Homebuilding Market on Solid Ground

December sales rose across all regions except for Northeast. Sales were the best in the West since January 2021. Home sales witnessed a solid rise in 2020 when mortgage rates hit an almost 40-year low.

However, things started changing in 2021. Rising interest rates, soaring prices of lumber and raw materials, and rising labor costs escalated home prices. However, even then, home sales weren’t hampered much.

This also saw homebuilder confidence soaring last year. Although analysts believe that December sales got a boost because buyers rushed to the market anticipating a hike in interest rates, it may not be all correct.

A separate report released by the Conference Board last week shows that home-buying plans over the next six months rose to a record high. This is definitely a good sign for the industry.

There were fewer homes available when demand was high before the pandemic. Now, fewer homeowners are willing to put their homes on the market. This is backing the rise in housing prices, and the trend is expected to continue in the coming days.

Our Choices

Despite growing prices, the homebuilding business is still strong, and demand for homes is expected to remain robust throughout 2022. As a result, this is an opportune time to invest in homebuilding stocks.

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 26.9%. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. Beazer Homes has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lennar Corporation is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily. Despite the varied product portfolio, homebuilding remains Lennar’s core business.

Lennar Corporation’s expected earnings growth rate for the current year is 10.9%. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the past 60 days. Lennar carries a Zacks Rank #2.

KB Home is a well-known homebuilder in the United States and one of the largest in the state. KB Homes’ revenues are generated from Homebuilding (accounting for 99.7% of fiscal 2021 total revenues) and Financial Services (0.3%) operations. KBH’s homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, townhomes and condominiums.

KB Home’s expected earnings growth rate for the current year is 67.9%. The Zacks Consensus Estimate for current-year earnings has improved 28.9% over the past 60 days. KB Home sports a Zacks Rank #1.

Toll Brothers Inc. builds single-family detached and attached home communities; master-planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania, and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.

Toll Brothers’ expected earnings growth rate for the current year is 49.9%. The Zacks Consensus Estimate for current-year earnings improved 12.6% over the past 60 days.  Toll Brothers has a Zacks Rank #1.

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