The U.S. housing industry is likely to retain its positive momentum on low mortgage rates, which remained below 3% for the majority of 2021. Per Freddie Mac’s latest Primary Mortgage Market Survey, the average U.S. 30-year fixed-rate mortgage for the week ended Sep 16 declined 2 basis points (bps) to 2.86% from a week ago. The metric also declined 1 bps from 2.87% recorded in the corresponding prior-year period.
The 15-year fixed-rate mortgage for the week averaged 2.12%, down 7 bps from the prior week, while the five-year adjustable-rate mortgage rose 9 bps to 2.51%. Since the onset of the pandemic, housing demand is on the rise as people have been looking for new and larger homes to work from home in lower-density markets, including small metro areas, rural markets, and large metro exurbs. Image Source: Zacks Investment Research
Yet, persistent supply chain disruptions since the pandemic, record-high lumber prices, and significant job loss ailed the homebuilding and related construction industries. The impact is clearly visible from the industry’s collective price performance in the past year. The Zacks
Building Products - Home Builders industry has gained just 11.8% compared with the Zacks Construction sector and S&P 500 composite’s 33.5% and 38.9% rally, respectively, in the said period. Will the Industry Rebound in 2H21?
Home sales are rising at a record pace, defying low inventory levels and Delta variant coronavirus cases. The desire for more space and amenities to accommodate working and learning from home along with the Fed’s dovish stance should continue to boost the U.S. housing market in the near term.
Notable homebuilders like D.R. Horton, Inc. ( DHI Quick Quote DHI - Free Report) , Lennar Corporation ( LEN Quick Quote LEN - Free Report) and PulteGroup, Inc. ( PHM Quick Quote PHM - Free Report) — each carrying a Zacks Rank #3 (Hold) — remain positive about the market demand for the second half. Yet, they remain cautiously optimistic about the industry’s prospects owing to higher input and labor costs. Homebuilders noted that supply constraints are likely to ease in the near term. Image Source: Freddie Mac
The recent housing data reveals encouraging market prospects. For the week ended Sep 10, Mortgage applications increased 0.3% from the week earlier, per the latest Mortgage Bankers Association's Weekly Mortgage Applications Survey. Purchase applications rose more than 7% to the highest level since April 2021. The results include an adjustment for the Labor Day holiday.
Input prices used for residential construction, excluding energy, fell 0.7% in August from a month ago, per the latest Producer Price Index report released by the Bureau of Labor Statistics. The downturn was largely due to a decline in lumber and wood products prices. This was the first monthly decline since the start of the last recession. On a further encouraging note, hiring in the construction sector increased 5.2% in July from the June reading, per the recent BLS’ Job Openings and Labor Turnover report. Private residential construction spending also rose 0.5% in July from the June reading, per the Census Bureau in its recent Monthly Construction Spending report. Total private residential construction spending was 27% higher than a year ago. These uptrends in housing statistics are pointing to significant strength in the industry’s fundamentals. Stocks to Bet on
Backed by solid housing metrics and forgoing woes, we have listed five top-ranked stocks from the Zacks Building Products - Home Builders industry that investors may add to their portfolio. These stocks have been picked with the help of the
Zacks Stock Screener and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. NVR, Inc. ( NVR Quick Quote NVR - Free Report) : This Zacks Rank #2 homebuilder banks on a disciplined business model, and focuses on maximizing liquidity as well as minimizing risks. Its shares have gained 21.2% in the past year. Earnings estimates for the current year have witnessed an upward revision of 8.7% in the past 60 days, indicating 51.3% year-over-year growth. Toll Brothers, Inc. ( TOL Quick Quote TOL - Free Report) : This luxury homebuilding company also currently carries a Zacks Rank #2. Toll Brothers primarily rides on limited competition in the market, and the strategy of broadening product lines, price points as well as geographies. Its shares have gained 41.4% in the past year. Earnings estimates for the current year have witnessed an upward revision of 9.1% in the past 30 days, suggesting 80% year-over-year growth. Meritage Homes Corporation ( MTH Quick Quote MTH - Free Report) : This leading designer and builder of single-family homes mainly benefits from strategic initiatives to boost profitability and focus on entry-level LiVE.NOW homes. Earnings estimates for the year have moved 28.9% upward in the past 60 days, implying 72.4% year-over-year growth. The company’s shares have appreciated 3.6% over a year. Although the stock has underperformed the industry, the positive estimate revision is encouraging. Currently, it sports a Zacks Rank #1. KB Home ( KBH Quick Quote KBH - Free Report) : This single-family homebuilder has been pursuing a Returns-Focused Growth Plan that is designed to drive revenues and homebuilding operating income margin. This Zacks Rank #2 company’s shares have gained 10.7% in the past year, almost in line with the industry. Earnings estimates for the year have increased 4% in the past 60 days, pointing to 99% year-over-year growth. Tri Pointe Homes, Inc. ( TPH Quick Quote TPH - Free Report) : This company is involved in the design, construction, and sale of single-family detached and attached homes. Primarily, it has been gaining from robust demand, pricing and better operating leverage. Its shares have gained 28.9% over a year. In the past two months, the company’s earnings estimates have moved up 14.2%, indicating 66.8% year-over-year growth.