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Homebuilding Market Continues to Flourish: 4 Solid Picks

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The U.S. homebuilding industry has remained unaffected despite the rampage created by the coronavirus pandemic. In fact, it has been on a roll ever since the economy reopened following the coronavirus-induced lockdown.

According to data released by the Commerce Department on Apr 16, U.S. homebuilding jumped to a 15-year high, with housing starts soaring to a record high in March. Also, building permits increased in March after falling in February. Moreover, both new and existing home sales have been higherthan inthe past year. This once again shows the strength in the industry, which is likely to grow as the economy improves further.

Housing Starts, Building Permits Surge

U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported on Friday that housing starts jumped 19.4% in March to a seasonally adjusted annual rate of 1.739 million units.

This is the highest level since 2006. March’s surge comes after an 11.3% decline in February. Moreover, housing starts jumped 37% in March on a year-over-year basis. Groundbreaking activity gained momentum in the Northeast, Midwest and South.

Also, building permits increased 2.7% in March after 8.8% in February. Not only housing starts and building permits, existing home sales too declined in February as large parts of the country were affected by extremely cold weather.

Housing Market on a High

The homebuilding industry has been on a high for quite some time now. Homebuilders have been benefiting from the acute shortage of existing homes for sale, which has seen demand for homes growing further after restrictions were lifted last May.

The pandemic compelled many to leave big cities and settle in smaller towns that helped drive home sales. Moreover, the record-low mortgage rate is acting as a tailwind for the housing sector.

There were already fewer homes in comparison to the high demand before the pandemic, and now fewer homeowners are willing to list their homes for sale. This is further helping boost 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, pushing upnew and existing home sales. This has also resulted in a surge in housing permits and starts, as homebuilders are in a rush to come up with more homes keeping in mind the robust demand.This thus makes for an opportune time to invest in homebuilding stocks.

Toll Brothers Inc. (TOL - Free Report)  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’s expected earnings growth rate for thenext year is 56.2%. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the past 30 days. The company sports 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) 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 81.5%. The Zacks Consensus Estimate for current-year earnings has improved 11.2% over the past 60 days.  The company carries a Zacks Rank #2 (Buy).

M.D.C. Holdings, Inc. MDC 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 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 34.6%. Its shares have gained 29.4% in the past three months. The company carries a Zacks Rank #2.

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 39.9%. The Zacks Consensus Estimate for current-year earnings has improved 23.9% over the past 60 days. The company has a Zacks Rank #2.

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