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

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Home sales in the United States reached its highest level since 2006 as historically low mortgage rate fueled demand. However, even then, buyers are struggling to purchase homes as record low supply and record high demand have been pushing up prices of homes.

That said, the pandemic, which saw almost all industries taking a hit, has not impacted the housing market much. Ever since the economy reopened in June, buyers have been flocking to purchase homes.

Existing Home Sales Rise in December

On Jan 22, the National Association of Realtors said that existing home sales jumped 0.7% in December from the prior month to a seasonally adjusted rate of 6.76 million units. Total sales volume for 2020 ended at 5.64 million units, up from 5.34 million units in the prior year. This is the highest level in 14 years.  

The pandemic saw many leave big cities and shift to smaller towns and suburbs that helped sales of homes. Moreover, record-low mortgage rates helped in buying homes. The housing market came to almost a standstill in April and May when the government shut down almost everything. However, as the economy reopened and people started going back to work, the housing market bounced back.

Since then, there has been a surge in demand for homes, which has also been pushing up prices.

Low Mortgage, Other Factors Pushing Demand 

Record low mortgage rates have been helping home sales and the trend is likely to boost the market in the future too. Mortgage rates fell to their 14th record low in 2020, the latest being in the end of November, indicating that it is going to help the homebuilding market further. However, record low supply amid growing demand is pushing up home prices. 

No doubt, the housing market has been on a tear for the past few months but supply continues to be a challenge. However, the growing demand has also seen a surge in permits too. In December, housing starts increased 5.8% to a seasonally adjusted annual rate of 1.669 million units last month, the Commerce Department said on Jan 22.

Also, permits for future homebuilding jumped 4.5% to 1,709 million units in December, marking a 4.8% increased from 2019. However, builders have been complaining of shortage of material and land. There were already fewer homes to meet demand before the pandemic, and now fewer homeowners are willing to list their homes for sale. This is further helping home prices and the trend is likely to continue in the days to come.

Our Choices

A record low mortgage rate is helping to boost home prices, which is giving a boost to new and existing homes sales. This is also an indication that buyers are showing confidence in the economy. In this opportune time to invest in homebuilding, we suggest five stocks with a favorable Zacks Rank that are likely to gain ahead.

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 next year is 25.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. The company carries a Zacks Rank #2 (Buy).

 KB Home (KBH - Free Report) is a well-known homebuilder in the United States. The company’s Homebuilding operations include building and designing homes that cater to first time, move-up and active adult homebuyers on acquired or developed lands.

The company’s expected earnings growth rate for next year is 63.3%. The Zacks Consensus Estimate for current-year earnings has improved 19.7% over the past 60 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lennar Corporation (LEN - Free Report)  is engaged in homebuilding and financial services in the United States. The company’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.

The company’s expected earnings growth rate for the current year is 8.3%. The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the past 60 days. The company sports a Zacks Rank #1.

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 37.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. The company carries a Zacks Rank #2.

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 42.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. PulteGroup has a Zacks Rank #2.

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