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Construction Spending Soars on Homebuilding Activity: 6 Picks

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Spending on construction projects in the United States increased in July, driven by gains in both the public and private sector projects. The U.S. economy is fast getting back on track and one of its biggest proofs is the jump in construction spending.

The economy took a bad hit last year but has been gradually recovering as people are more confident now, with the vaccination drive in full swing. Much like in the first half of the year, the homebuilding sector has been majorly responsible for this rise in construction activity.

Construction Spending Increases

The Commerce Department reported on Sep 1 that construction spending increased 0.3% in July to a seasonally adjusted annual rate of $1,568.8 billion from June’s revised estimate of $1,563.4 billion. On a year-over-year basis, spending on construction activity increased 9%.

Unlike the earlier months of the years, spending was driven by both private and public sectors. Although spending on construction activity has been on the rise, it was so far being driven by the private sector.

Spending on private construction projects increased 0.3% in July after increasing 0.3% in the prior month. The bulk of the spending was on residential projects, which increased 0.8%. Spending on public construction projects finally rebounded, increasing 0.7% in July after declining 1.6% in June.

Residential Construction Spending on the Rise

The homebuilding market, which is losing steam lately, seems to be back on track again, with both new and existing home sales rising in July. The Commerce Department reported last week that new home sales grew 1% in July, to a seasonally adjusted annual rate of 708,000 units after an upwardly revised 701,000 in June.

Also, the National Association of Realtors said that existing home sales rose 2% in July. This proves how spending on new residential construction projects has been rising, as demand for housing continues to be robust despite the rising cost of building materials.

Ever since the economy started reopening, construction spending has been on the rise except for some surprise drops in between. Moreover, fears of the Delta variant of the COVID-19 haven’t dented much of the confidence of people, which is helping construction activity.

The Commerce Department also said that construction spending during the first seven months of the year amounted to $883.2 billion, which is 6.2% higher than the year-ago period. This once again shows the smooth pace at which spending on construction activity is increasing.

Our Choices

Homebuilding continues to be a bright spot in the overall construction activity. Private residential construction spending has picked up in order to cater to the escalating demand for new homes, thus making for the right opportunity to invest in homebuilding stocks.

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 current year is 99.4%. The Zacks Consensus Estimate for current-year earnings improved 9.5% over the past 60 days. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 72.4%. The Zacks Consensus Estimate for current-year earnings improved 28.9% over the past 60 days.  The company sports a Zacks Rank #1.

NVR, Inc. (NVR - Free Report) is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis.

The company’s expected earnings growth rate for the current year is 51.3%. The Zacks Consensus Estimate for current-year earnings improved 5.5% over the past 60 days. The company sports a Zacks Rank #1.

MI Homes, Inc. (MHO - Free Report) is one of the nation's leading builders of single-family homes. It serves a broad segment of the housing market, including first-time, move-up, luxury and empty-nester buyers. 

The company’s expected earnings growth rate for the current year is 63.3%. The Zacks Consensus Estimate for current-year earnings improved 32.5% over the past 60 days.  The company sports a Zacks Rank #1.

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 more than 100%. The Zacks Consensus Estimate for current-year earnings improved 10.9% over the past 60 days. Century Communities carries a Zacks Rank #2.

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 75%. The Zacks Consensus Estimate for current-year earnings improved 6.1% over the past 60 days. Its shares have gained 36.1% year to date. The company has a Zacks Rank #1.