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Homebuilding Continues to Drive Construction Spending: 5 Picks

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Spending on construction projects in the United States rose in April as single-family home projects continued to drive the sector. Per the latest data released by the Commerce Department on Jun 1, construction spending increased 0.2% in April.

The economy took a bad hit during the peak of the pandemic and the effect was felt almost throughout 2020. However, things finally started changing this year as the economy reopened and restrictions were eased. This has seen spending on construction activity once again gaining pace.

Construction Spending Rises in April

The Commerce Department said on Tuesday that construction spending increased moderately by 0.2% in April after rising 1% in March. Construction spendingaccounts for around 4% of the nation’s total GDP.

On a year-over-year basis, construction spending rose 9.8% in April, once again proving that people are showing faith in the economy. April’s gains were driven by increased spending on private projects such as new single-family homes. Spending on private projects grew 0.4%. 

Demand for single-family home remains high despite rising lumber prices and labor costs. Outlays on residential projects rose 1% in April.

However, spending declined 0.5% on private nonresidential construction like gas and oil well drilling in April, and 0.6% on public construction projects.

Residential ConstructionSpending on the Rise

Last week, the Commerce Department had reported that new home sales declined 5.9% in April on a month-over-month basis. Nonetheless, spending on residential construction increased 1% last month, per the Commerce Department. This included spending on single-family, multifamily and home improvement projects. Interestingly, spending on residential projects is now 29.7% higher than a year ago.

Construction of single-family homes also rose 1.3% in April, while apartment construction grew 1.9%. Thus, construction spending is largely being driven by the housing sector.

Our Choices

Demand for new homes in the United States has been on the rise owing to record-low mortgage rates. Private residential construction spending has also picked up to cater to the escalating demand for new homes, thus creating the right opportunity to invest in homebuilding stocks. Each of the companies carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA, Inc. (BZH - Free Report) designs, builds and sells single-family homes. The company designs homes to appeal primarily to entry-level and first move-up home buyers. 

The company’s expected earnings growth rate for the current year is 58.7%. The Zacks Consensus Estimate for current-year earnings has improved 36.4% over the past 60 days.

Century Communities, Inc. (CCS - Free Report) is a home building and construction company. Its activities comprise land acquisition, development and entitlements; and the acquisition, development, construction, marketing, and sale of various single-family detached and attached residential home projects. 

The company’s expected earnings growth rate for the current year is 88.6%. The Zacks Consensus Estimate for current-year earnings has improved 41% over the past 60 days.

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 the current year is 62.1%. The Zacks Consensus Estimate for current-year earnings has improved 14.2% over the past 60 days.

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 Denver, CO, Phoenix, AZ Maryland,Virginia, the mid-Atlantic region, Las Vegas, Dallas and the California metropolitan areas. 

The company’s expected earnings growth rate for the current year is 59.4%. The Zacks Consensus Estimate for current-year earnings has improved 18.4% over the past 60 days.

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 48.3%. The Zacks Consensus Estimate for current-year earnings has improved 25.5% over the past 60 days.

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