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Pending Home Sales Soar in May: 5 Solid Stocks to Buy

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Pending home sales, which mean the number of houses going under contract for future sales, increased in May to its highest level in more than 15 years. Both new and existing homes sales have been on the decline this year due to shortage of houses on the market.

Demand for homes has been on the rise despite rising mortgage rates. At the same time, home prices too have been rising but that isn’t stopping people from searching for new homes. This has once again proved the underlying strength in the homebuilding industry.

Pending Home Sales Rise

The National Association of Realtors (NAR) said on Jun 30 that pending home sales rose 8% in May to 114.7, beating analysts’ expectations of a 0.8% decline. This is also the highest level since May 2005. On a year-over-year basis, pending home sales grew 13.1%.

The jump is impressive given that the housing market boom had started exactly a year ago, after coming to a halt in March and April following the coronavirus outbreak.

On a month-over-month basis, transactions increased in all four major U.S. regions. Regionally, pending home sales grew 15.5% in the Northeast, 10.9% in the West and 6.7% in the Midwest. Sales increased 4.9% in the South.

Homebuilding Market Still Going Strong

Rising lumber prices and higher mortgage rate have been shooting up prices of homes. However, demand is still high but there aren’t enough homes on the market, which has been impacting sales lately. May’s jump is an indication that people don’t mind shelling out a few extra bucks to buy new homes.

Besides, this once again proves that the housing market is still going strong despite having slowed down a bit lately. The housing market took a bad hit in April and May last year when the government had shut down almost everything, with sales almost coming to a standstill.

However, as the economy reopened, people started flocking to the housing market. Since then, home sales have been hitting multi-year highs. Moreover, the pandemic compelled many to leave big cities and settle in smaller towns that helped drive home sales.

Also, lower mortgage rate last year pushed many to rush for home buying. Mortgage rates are rising but are still quite low and luring people to the market.

Our Choices

The rise in pending home sales proves the continuing boom in the homebuilding market. This thus makes for an opportune time to invest in homebuilding stocks.

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 73.4%. The Zacks Consensus Estimate for current-year earnings has improved 19.3% over the past 60 days. The company carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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 the current year is 68.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. The company sports a Zacks Rank #1.

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 the next year is 86.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days.  The company carries a Zacks Rank #2 (Buy).

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 7.4% over the past 60 days. The company carries a Zacks Rank #2.

Meritage Homes Corporation (MTH - Free Report) primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active-adult buyers in the historically high-growth regions of the United States.

The company’s expected earnings growth rate for the current year is 32.9%. The Zacks Consensus Estimate for current-year earnings has improved 10.8% over the past 60 days. The company has a Zacks Rank #2.

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