The coronavirus pandemic has been a massive catalyst for the housing market. Declining mortgage rates and the demand for more space and amenities to accommodate work from home as well as at-home learning have led to a surge in homebuying and home improvement projects. Notably, it takes approximately 21 days for a home to go from listing to a contract in the current housing market. A year ago, it took 38 days. In fact, the National Association of Realtors expects total 2020 home sales of about 5.7 million, the highest in 14 years.
According to the latest National Association of Home Builders/Wells Fargo Housing Market Index, builders’ confidence in December was the second-highest in the history of the series. This upbeat reading indicates that housing remains a bright spot for the economy though strong demand for larger homes, rising materials costs and skilled labor shortages is lifting prices, thereby raising affordability issues in the near term. Defying all odds, companies in the Zacks Building Products - Home Builders industry have collectively grown 21% over the past year, higher than the broader market’s (S&P 500) rally of 17.9%. Residential Market Prospects for 2021
According to Dodge Data & Analytics’ 2021 Dodge Construction Outlook, total U.S. construction starts will increase 4% in 2021 to $771 billion after declining an estimated 14% in 2020 to $738 billion.
Residential construction remains the bright spot, with total residential starts expected to rise 5% in 2021, following a 2% drop in 2020, per the Dodge report. Rising need for more work-at-home space and record-low borrowing costs should continue to aid the housing market that displayed stern resilience to the economic impacts of the pandemic. In fact, mortgage rates have been slipping to all-time lows following the Fed's emergency interest-rate cuts. The Fed’s decision to keep interest rates near zero until the economy recovers should keep the momentum alive in the housing industry. Also, the $900-billion pandemic relief package and the ongoing mass immunization process will give a major boost to the economy and thereby the U.S. housing market for 2021. With respect to this, Lawrence Yun, chief economist for the National Association of Realtors, said, “the latest stimulus package and with the vaccine distribution underway, and a very strong demand for homeownership still prevalent, robust growth is forthcoming for 2021.” 5 Promising Housing Picks for 2021
Here we have selected five large-cap housing stocks that have scaled higher than the industry over the past year. These industry bigwigs are well positioned to hit new highs in 2021 as well, given the upbeat sentiment in the market, optimism on mass vaccination, broad stimulus package and low rates. These stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here D.R. Horton, Inc. ( DHI Quick Quote DHI - Free Report) : Based in Texas, D.R. Horton 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. Its industry-leading market share, solid acquisition strategy, well-stocked supply of land, lots and homes along with affordable product offerings across multiple brands will drive growth. D.R. Horton ended fiscal 2020 on a strong note, with adjusted earnings and revenues increasing 42% and 15%, respectively. The stock sports a Zacks Rank #1 and has a VGM Score of B. For fiscal 2021, this company’s earnings and revenues are expected to grow 23.6% and 25.3%, respectively. The company delivered a trailing four-quarter positive earnings surprise of 21.6%, on average. Shares have gained 29.1% in the past year. Lennar Corporation ( LEN Quick Quote LEN - Free Report) : Miami-based Lennar operates as a homebuilder, primarily under the Lennar brand in the United States, targeting first-time, move-up, and active adult homebuyers. Effective cost control and focus on making its homebuilding platform more efficient have been resulting in higher operating leverage. The company currently sports a Zacks Rank #1 and has a VGM Score of A. For fiscal 2021, this homebuilder’s earnings are expected to grow 8.3%. The company delivered a trailing four-quarter positive earnings surprise of 32.1%, on average. The stock has gained 31.4% in the past year. M.D.C. Holdings, Inc. ( MDC Quick Quote MDC - Free Report) : Headquartered in Denver, CO, this homebuilder has been benefiting from a resilient housing market and improved operating leverage. Focus on the more affordable segments of the market, solid order growth and higher backlog are expected to boost its performance in 2021. The company currently sports a Zacks Rank #1. For 2021, this homebuilder’s earnings are expected to grow 23.8%. The company delivered a positive earnings surprise in three of the trailing four quarters, the average being 19.6%. The stock has gained 25.1% in the past year. KB Home ( KBH Quick Quote KBH - Free Report) : Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. Its ongoing execution of returns-focused growth plan, balanced approach of allocating cash flow and improvement in gross margin are commendable. The company is focused on its core KB2020 business strategy which aims to boost scale in existing geographic footprint, improve profitability per unit, generate higher operating margin, drive earnings while generating positive cash flow to redeploy for growth and debt reduction. Although this Zacks Rank #2 company’s shares have declined 6% over the past year, earnings estimates have been trending upward, increasing 1% over the past 30 days. For fiscal 2021, this homebuilder’s earnings are expected to grow 47.7%. The company delivered a positive earnings surprise in three of the trailing four quarters, with the average being 27.6%. TopBuild Corp. ( BLD Quick Quote BLD - Free Report) : Headquartered in Daytona Beach, FL, this company is an installer and distributor of insulation and other building products to the U.S. construction industry. Strengthening housing market prospects, systematic inorganic strategy, its strength in the Insulation Installation business, and improving repair and remodeling activities build hope. Earnings for 2021 are expected to increase 21.2%. The company delivered a trailing four-quarter positive earnings surprise of 18.7%, on average. The company currently holds a Zacks Rank #2 and has gained 76.2% over the past year. Zacks Top 10 Stocks for 2021
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