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Housing Solid as Confidence Skyrockets in August: 5 Picks
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U.S. homebuilders’ sentiment has risen to the highest level in the index’s 35-year history in August, matching the December 1998 level.
The U.S. homebuilding industry has been bullish since the easing of coronavirus-led restrictions. After a sharp fall of 42 points in April, builders have started responding to the current need of buyers, who are looking for more affordable homes in lower-density markets.
Homebuilders project solid second-half 2020 numbers as the demand for new single-family homes has increased significantly in recent times. This is evident from increasing mortgage applications, given low interest rates.
In the past three months, the Zacks Building Products - Home Builders industry has improved 36.4% compared with the Zacks Construction sector and S&P 500 composite’s 30.5% and 13.9% rally, respectively.
35-Year High August Reading a Boon
Per the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released on Aug 17, confidence level among single-family builders spiked six points from the July reading to 78.
This V-shaped housing recovery was attributable to all the three indices. The HMI, gauging sales conditions, gained six points from the last month to 84. Traffic of prospective buyers rose eight points to the historically highest level of 65. Sales predictions for the next six months also increased three points to 78.
Coming to the three-month moving averages for regional HMI reading, Northeast reported a 20-point improvement to 65, Midwest gained 13 points to 63, South grew 12 points to 71 and West increased 15 points to 78 from the prior-month figures.
Will Rising Lumber Prices Restrict Recovery?
Home construction is one of the essential factors of economic development. Markedly, the above-mentioned housing data reflects market strength. However, the recent threats cannot be ignored. The world economy is still trying to recover from the consequences of the virus outbreak. The effects of the pandemic on the economy remain unpredictable for the rest of 2020. In addition to the existing threats, lumber prices — which have increased 80% since mid-April per NAHB — could dampen the momentum of the housing market. The increase was mainly due to insufficient domestic production and tariffs on Canadian sources.
The housing industry — which contributes 3-5% to the U.S. GDP — has also been witnessing the U.S.-China trade spat, labor shortage and inflating land prices. Also, lower manufacturing and weak investment due to the coronavirus outbreak added to the woes.
Nonetheless, these factors could not hinder housing market hopes, given soaring buyer traffic. Notably, home prices are rising well above the rate of inflation, as the housing inventory remains low. Also, mortgage applications are 39% ahead of July 2019 levels, giving another reason to be optimistic. Evidently, new home sales rose 3% in first-half 2020 from the year-ago period, despite COVID-19-led slowdown. The July reading is set to be released on Aug 25, which will give an idea of second-half 2020 performance.
Notably, the labor market is also improving steadily as builders are calling off their furlough decision and paying back the holding wages. Per the U.S. Bureau of Labor Statistics report released on Aug 7, July unemployment rate reduced to 10.2% from June’s 11.1%. Encouragingly, the July rate was better than analysts’ expectation of 10.4% and the April 2020 reading of 14.7%.
Stocks to Bet on
Backed by solid housing metrics and forgoing cost woes, we have listed five top-ranked stocks from the Zacks Building Products - Home Builders industry that investors must add to their portfolio. Notably, these stocks are picked with the help of the Zacks Stock Screener. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Five such housing stocks with encouraging performance and prospects are D.R. Horton, Inc. (DHI - Free Report) , PulteGroup, Inc. (PHM - Free Report) , Meritage Homes Corporation (MTH - Free Report) , M.D.C. Holdings, Inc. and M/I Homes, Inc. (MHO - Free Report) .
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Housing Solid as Confidence Skyrockets in August: 5 Picks
U.S. homebuilders’ sentiment has risen to the highest level in the index’s 35-year history in August, matching the December 1998 level.
.jpg)
The U.S. homebuilding industry has been bullish since the easing of coronavirus-led restrictions. After a sharp fall of 42 points in April, builders have started responding to the current need of buyers, who are looking for more affordable homes in lower-density markets.
Homebuilders project solid second-half 2020 numbers as the demand for new single-family homes has increased significantly in recent times. This is evident from increasing mortgage applications, given low interest rates.
In the past three months, the Zacks Building Products - Home Builders industry has improved 36.4% compared with the Zacks Construction sector and S&P 500 composite’s 30.5% and 13.9% rally, respectively.
35-Year High August Reading a Boon
Per the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released on Aug 17, confidence level among single-family builders spiked six points from the July reading to 78.
.jpg)
This V-shaped housing recovery was attributable to all the three indices. The HMI, gauging sales conditions, gained six points from the last month to 84. Traffic of prospective buyers rose eight points to the historically highest level of 65. Sales predictions for the next six months also increased three points to 78.
Coming to the three-month moving averages for regional HMI reading, Northeast reported a 20-point improvement to 65, Midwest gained 13 points to 63, South grew 12 points to 71 and West increased 15 points to 78 from the prior-month figures.
Will Rising Lumber Prices Restrict Recovery?
Home construction is one of the essential factors of economic development. Markedly, the above-mentioned housing data reflects market strength. However, the recent threats cannot be ignored. The world economy is still trying to recover from the consequences of the virus outbreak. The effects of the pandemic on the economy remain unpredictable for the rest of 2020. In addition to the existing threats, lumber prices — which have increased 80% since mid-April per NAHB — could dampen the momentum of the housing market. The increase was mainly due to insufficient domestic production and tariffs on Canadian sources.
The housing industry — which contributes 3-5% to the U.S. GDP — has also been witnessing the U.S.-China trade spat, labor shortage and inflating land prices. Also, lower manufacturing and weak investment due to the coronavirus outbreak added to the woes.
Nonetheless, these factors could not hinder housing market hopes, given soaring buyer traffic. Notably, home prices are rising well above the rate of inflation, as the housing inventory remains low. Also, mortgage applications are 39% ahead of July 2019 levels, giving another reason to be optimistic. Evidently, new home sales rose 3% in first-half 2020 from the year-ago period, despite COVID-19-led slowdown. The July reading is set to be released on Aug 25, which will give an idea of second-half 2020 performance.
Notably, the labor market is also improving steadily as builders are calling off their furlough decision and paying back the holding wages. Per the U.S. Bureau of Labor Statistics report released on Aug 7, July unemployment rate reduced to 10.2% from June’s 11.1%. Encouragingly, the July rate was better than analysts’ expectation of 10.4% and the April 2020 reading of 14.7%.
Stocks to Bet on
Backed by solid housing metrics and forgoing cost woes, we have listed five top-ranked stocks from the Zacks Building Products - Home Builders industry that investors must add to their portfolio. Notably, these stocks are picked with the help of the Zacks Stock Screener. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Five such housing stocks with encouraging performance and prospects are D.R. Horton, Inc. (DHI - Free Report) , PulteGroup, Inc. (PHM - Free Report) , Meritage Homes Corporation (MTH - Free Report) , M.D.C. Holdings, Inc. and M/I Homes, Inc. (MHO - Free Report) .
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>