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Existing Home Sales 14-Year High: 5 Solid Stocks to Buy

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It’s proving to be a great summer for the housing market, with no signs of its cooling off. After a record-setting July, sales of existing homes rose more than 10% year over year, according to the National Association of Realtors (NAR).

The coronavirus pandemic has battered the global economy and almost all industries have been deeply impacted. With millions losing jobs over the past few weeks, finance has been a major problem. This directly impacted the homebuilder market, with few Americans buying homes. However, the scenario as the economy started reopening, people too started flocking to buy home. And the trend has been positive all summer.

Existing Home Sales Touch to New High

Sales of existing homes rose 2.4% to a seasonally adjusted annualized rate of 6 million units, according to the NAR. Sales were 10.5% higher than August 2019. This is the highest sales pace since December 2006, before the Great Recession.

Sales were hampered only by a lack of supply. There were 1.49 million homes for sale at the end of August, down 18.6% year over year to a 3-month supply. The supply of homes for sale when sales were last this robust, in 2006, was more than double the current supply. That tight supply pushed the median price of an existing home sold in August to a record high of $310,600. This is up 11.4% annually. In the third quarter of this year, housing wealth will have increased by $1.5 trillion from the second quarter.

Supply Shortage & Other Factors Pushing Demand

Understandably, homebuilders are benefiting from a severe shortage of existing homes for sale. There were already fewer homes to meet demand before the pandemic, and now fewer homeowners are willing to list their homes for sale.

Many other factors are also helping home sales as states continue to relax stay-at-home restrictions. Coronavirus resulted in record job losses in April, and a collapse in manufacturing output and retail sales. People backed out from buying homes as they feared blocking their money by investing in property. However, U.S. consumer confidence and consumer spending started improving since May, indicating that life is somewhat going back to normal.

Moreover, home-buying activity is getting another boost from record-low mortgage rates, which have dropped below 3% for a 30-year fixed-rate mortgage for the first time in nearly 50 years. Unless rates really break much higher, which is unlikely, the latest increase is unlikely to throw cold water on strong demand for housing. Thus, new home sales are likely to get a boost in the coming days also.

Our Choices

The rise in homebuilder sentiment coupled with a jump in new and existing homes sales are indications that buyers are showing interest, with the U.S. economy gradually reopening and people going back to work. In this opportune time to invest in homebuilding, we suggest five stocks with a Zacks Rank #1 (Strong Buy) that are likely to gain ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

MI Homes, Inc. (MHO - Free Report) is one of the nation's leading builders of single-family homes. M/I Homes serves a broad segment of the housing market, including first-time, move-up, luxury and empty-nester buyers. 

The company’s expected earnings growth rate for the current year is 36.7%. The Zacks Consensus Estimate for current-year earnings has improved 91.2% over the past 30 days. 

D.R. Horton, Inc. (DHI - Free Report) is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets.

The company’s expected earnings growth rate for the current year is 35.7%. The Zacks Consensus Estimate for current-year earnings has improved 20.9% over the past 60 days. 

PulteGroup, Inc. (PHM - Free Report) engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments — Homebuilding and Financial Services.

The company’s expected earnings growth rate for the current year is 22.1%. The Zacks Consensus Estimate for current-year earnings has improved 43.9% over the past 60 days. 

M.D.C. Holdings, Inc. (MDC - Free Report) engages in homebuilding and financial service businesses in the United States. It is engaged in the construction, sale and related financing of residential housing and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, mid-Atlantic region, Las Vegas, Dallas and California metropolitan areas. 

The company’s expected earnings growth rate for the current year is 28.2%. The Zacks Consensus Estimate for current-year earnings has improved 59.5% over the past 60 days.

Meritage Homes Corporation (MTH - Free Report) primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.

The company’s expected earnings growth rate for the current year is 42.8%. The Zacks Consensus Estimate for current-year earnings has improved 50.6% over the past 60 days.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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