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New Home Sales Jump in December: 5 Solid Stocks to Buy

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The U.S. homebuilding market has been doing well for quite some time. And the latest proof of that is the increase in new home sales logged in December. The report comes after the National Association of Realtors last week said that existing home sales hit its highest level since 2006.

However, at the same time, home prices too have skyrocketed. A low mortgage rate coupled with increased demand for new homes is helping the homebuilding industry and the scene is likely to stay so in the coming months.

New Home Sales Jump in December

The Commerce Department said on Jan 28 that sale of new single family homes increased 1.6% in December to a seasonally annual rate of 842,000 units. On a year-over-year basis, new home sales increased 15.2%, with sales totaling 811,000 units in 2020, marking an increase of 18.8% from the prior year. This is also the highest level in more than a decade.

The government had earlier reported that housing starts jumped in December to its highest level since 2006. Besides, permits for homebuilding in the future also hit its highest level since August 2006. This once again proves the growing demand for housing and the steady growth being witnessed by the sector.

Low Mortgage Rate Helping Homebuilding Market

Record low mortgage rates have been helping home sales and the trend is likely to boost the market in the future too. According to data from mortgage finance agency Freddie Mac, the 30-year fixed mortgage rate is at a record low of 2.77%.

Understandably, people don’t want to let go this opportunity and are rushing to buy their home. Given this situation, higher demand for homes is resulting in supply crunch and pushing up prices.

Also, the pandemic saw many leave big cities and shift to smaller towns and suburbs that helped in sales of homes.  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 acting as further tailwind to home prices.

Our Choices

Record low mortgage rate is giving a boost to new and existing homes sales. This is also an indication that buyers are showing confidence in the economy. This thus makes for an opportune time to invest in homebuilding stocks.

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.

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 30.4%. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the past 60 days. The company has a Zacks Rank #2 (Buy).

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 15.4%. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the past 60 days.  PulteGroup has a Zacks Rank #2.

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.

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