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US Housing Sector Continues to Move North: 5 Stock Picks

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As the U.S. economy tries to recover from the drubbing received from the coronavirus pandemic, the housing sector in particular is red-hot. Historically-low mortgage rates, shortage in supply of homes and demographic shift continue to boost homebuying and home improvement activities. Reports from the housing sector in January indicate that the space is maintaining momentum and will continue to rise this year as well.

New Home Sales Tops Expectation in January

On Feb 24, the Commerce Department reported that new home sales rose 4.3% to a seasonally-adjusted annual rate of 923,000 units in January. The consensus estimate was 857,000 units and December 2020 figure was upwardly revised to 885,000 units. Sales increased in the South, Midwest and West regions, while the Northeast region recorded a decline. Additionally, new home sales jumped 19.3% from the same period last year. Median new house price rose 5.3% from a year earlier to $346,400 in January.

Other housing data from January also looked promising. On Feb 18, the U.S. Census Bureau reported that building permits grew at the fastest pace since 2006. Building permits increased 10.4% last month at a seasonally-adjusted annual rate of 1.881 million. In fact, January’s figure highlighted a 22.5% jump from the same period last year and surpassed the consensus estimate of 1.685 million. There was an uptick in multifamily structures permits. The number of building permits issued for buildings with five or more housing units increased 28%, compared to a 3.8% rise in single-family permits last month.

In a separate news released on Feb 18, the National Association of Realtors reported that existing home sales rose 0.6% in January, to a seasonally adjusted annual rate of 6.69 million units, surpassing the consensus estimate of 6.62 million units. January’s rise was 23.7% year over year. And as of the end of January, housing inventory fell 25.7% year over year to 1.04 million units, marking a record decline.

Factors Boosting the Housing Space

According to Redfin’s report, 55% of homes that went under contract in the week ending Jan 24 found a buyer in 14 days or lesser. This is the largest share that got sold so quickly in at least nine years. Tight inventories have pushed home prices higher, resulting from lack of land. Meanwhile, expensive lumber has made it difficult for first-time buyers to own a house. However, there are several tailwinds that will continue to boost the housing space this year.

Americans are continuously driving demand for new homes with their requirement for more space for home offices and education as the pandemic drags on. In fact, the National Association of Home Builders’ monthly confidence index has risen to 84 in February, as builders see better foot traffic from home buyers. Additionally, record low mortgage rates have constantly supported buyers. The 30-year fixed rate remains well below 3%.

Top 5 Housing Stocks to Buy

Reports in January suggest that the housing market could continue to support the U.S. economy’s recovery from the pandemic-led recession. Hence, investors looking to profit from the housing boom can invest in these five stocks that are poised to grow.

Century Communities, Inc. (CCS - Free Report) engages in the design, development, construction, marketing, and sale of single-family attached and detached homes. The company's expected earnings growth rate for the current year is 33.8% compared with the Zacks Building Products - Home Builders industry’s projected earnings growth of 14.4%.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 38.2% upward over the past 60 days. Century Communities holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home (KBH - Free Report) builds and sells various homes that include attached and detached single-family residential homes, townhomes, and condominiums. Belonging to the Zacks Building Products - Home Builders industry, this company has an expected earnings growth rate of 63.3% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 19.7% upward over the past 60 days. KB Home holds a Zacks Rank #1.

Beazer Homes USA, Inc. (BZH - Free Report) operates as a homebuilder that designs, constructs, and sells single-family and multi-family homes under the Beazer Homes, Gatherings, and Choice Plans names. This company that belongs to the Zacks Building Products - Home Builders industry has an expected earnings growth rate of 16.4% for the current year. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current-year earnings has been revised nearly 14% upward over the past 60 days.

D.R. Horton, Inc. (DHI - Free Report) constructs and sells single-family detached homes; and attached homes, such as town homes, duplexes, and triplexes. This company that belongs to the Zacks Building Products - Home Builders industry has an expected earnings growth rate of 41% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised 14.1% upward over the past 60 days. D.R. Horton holds a Zacks Rank #2.

Taylor Morrison Home Corporation (TMHC - Free Report) designs, builds, and sells single-family and multi-family attached and detached homes; and develops lifestyle and master-planned communities. This company that belongs to the Zacks Building Products - Home Builders industry has an expected earnings growth rate of more than 100% in the current year. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current-year earnings has been revised 15.5% upward over the past 60 days.

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