Back to top

Image: Bigstock

Builders Regain Confidence in April: 5 Top Housing Picks

Read MoreHide Full Article

Homebuilders are now bullish on the housing market once again after tumbling in March, owing to rising interest rates and cost of materials, especially lumber. Defying all these odds, homebuilder sentiment inched one point higher in April, given solid demand trend.

According to the National Association of Home Builders (“NAHB”) report released on Thursday, monthly Housing Market Index (HMI) reading jumped one point to 83 in April from March. Low existing homes for sale and strong underlying demand for housing raise optimism despite headwinds like rising costs and persistent shortage of skilled labor that continues to vex builders.

The April 2021 reading for builder confidence was also up from 30 in the year-ago period, when homebuilder sentiment suffered the biggest monthly drop in the index’s 35-year history as the coronavirus pandemic hammered the American economy.

For this month, two of the three HMI components grew sequentially. Current sales conditions increased one point to 88. Buyer traffic rose three points to 75 but sales prediction for the next six months dropped two points to 81. Although the HMI gauge of future sales expectations fell, it remained in the 80s, signaling persistent growth in housing demand this year.

Supply Challenges & Rising Costs Still Taking a Toll

Although builders are confident about the U.S. housing market, they are facing trouble in meeting demand due to supply-related challenges and higher costs of materials.

Apart from the decade-old issue of shortage of existing homes for sale, the biggest problem that builders are facing right now is obtaining the materials required to build homes. Prices of some building materials have already hit phenomenal highs in the first three months of the year. Lumber futures for May delivery hit a new intraday all-time high of $1,212.70 per thousand board feet on Apr 14, 2021.

With respect to this, NAHB Chairman, Chuck Fowke, said, “though builders are seeking to keep home prices affordable in a market in need of more inventory, policymakers must find ways to increase the supply of building materials as the economy runs hot in 2021.”

Although mortgage interest rates have been moving up since February and home prices continue to exceed inflation, the demand for homes has been accelerating.

Furthermore, mortgage rates in the United States dropped for a second straight week, slipping to the lowest level in more than a month. The 30-year fixed mortgage rate was 3.04% for the week ended Apr 15, per Freddie Mac data, down from 3.13% last week. Notably, this reading is the lowest since early March.

Considering the pros and cons, NAHB Chief Economist Robert Dietz, said, “NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.”

Homebuilding Industry Performance

Overall, the U.S. housing market seems to be doing well, defying headwinds like low inventory level and the ongoing public health risks associated with the pandemic.

So far this year, the Zacks Building Products - Home Builders industry has widely outperformed the broader market (S&P 500), as you can see below. The industry falls within the top 25% (64 out of 251 industries) of the Zacks Industry Rank, which hints at further growth.


Key Housing Picks

Adding some housing stocks to your portfolio looks like a smart move at this point as there are myriad reasons to be optimistic about the broader housing sector, both for the short and long term. With the help of the Zacks Stock Screener, we have zeroed in on five stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and favorable metrics. A top Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translate into rapid price appreciation. You can see the complete list of today’s Zacks #1 Rank stocks here.

Toll Brothers, Inc. (TOL - Free Report) : Based in Horsham, PA, Toll Brothers builds single-family detached and attached home communities; master planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves.

The company currently sports a Zacks Rank #1. Earnings estimates for fiscal 2021 have moved 1.9% north over the past seven days. Earnings for the current year are expected to grow 56.2%.

KB Home (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. 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 currently carries a Zacks Rank #2. Earnings estimates for fiscal 2021 have moved 3.8% north over the past seven days. Earnings for the current year are expected to grow 81.5%.

Lennar Corporation (LEN - Free Report) : Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The company is one of the nation’s largest homebuilder in terms of revenues.

It currently carries a Zacks Rank #2. Earnings estimates for fiscal 2021 have moved 4.8% north over the past seven days. Earnings for the current year are expected to grow 39.9%.

M.D.C. Holdings, Inc. (MDC - Free Report) : Headquartered in Denver, CO, this company’s homebuilding operations include purchasing finished lots or developing lots for the construction and sale of primarily single-family detached homes to first-time and first-time move-up homebuyers under the Richmond American Homes name.

It currently carries a Zacks Rank #2. Earnings for the current year are expected to grow 34.6%.

Landsea Homes Corporation (LSEA - Free Report) : Headquartered in Newport Beach, CA, this company engages in the acquisition, development, and building of lots, homes as well as condominiums in California, Arizona, New York, and New Jersey.

The stock currently carries a Zacks Rank #2. Earnings estimates for 2021 have moved 5.6% north over the past 60 days.

Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

The only question is “Will you get into the right stocks early when their growth potential is greatest?”

Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.

Download FREE: How to Profit from Trillions on Spending for Infrastructure >>