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The Zacks Analyst Blog Highlights: MI Homes, Landsea Homes and Meritage Homes

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For Immediate Release

Chicago, IL – October 1, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: MI Homes, Inc. (MHO - Free Report) , Landsea Homes Corporation (LSEA - Free Report) and Meritage Homes Corporation (MTH - Free Report) .

Here are highlights from Thursday’s Analyst Blog:

When Will the Housing Market Normalize?

The housing crunch is still a reality. This is seen in the still-low inventories and the still-soaring prices. And it’s despite the fact that buyers are holding off due to a combination of factors, including market conditions, affordability issues, summer distractions, the fall schooling season, as well as the need to start holiday shopping earlier this year.

What the Numbers Say

Zillow data shows that after increasing at an accelerated rate for each month since January, price increases started moderating in August to $303,288 (including across 43 of the 50 largest major metros). A year-over-year deceleration isn’t expected until Jan 2022.

The price moderation is of course related to inventories, which climbed for the fourth straight month in August, while remaining 22.7% lower than last year. So it’s easy to see why the firm sees home values continuing to increase (by 4.7% between August and November this year and 11.7% between Aug 2021 and Aug 2022).

So inventories need to increase much more before the situation normalizes.

As far as new homes are concerned, the Census Bureau and HUD say that privately-owned housing starts in August were up 3.9% (±11.3%) from July and up 17.4% (±12.1%) from August 2020. But housing completions slowed 4.5% (±11.1%) from July although they were up 9.4% (±10.3%) from August 2020.

Also, single-family starts slowed while completions increased. New home sales were 1.5% (±15.1 percent) above July, but 24.3% (±19.1%) below August 2020. Inventory at August-end was 378,000, representing 6.1 months of supply at the current average sales price of $443,200 (median $390,900).

According to the National Association of Realtors, existing home sales dropped 2.0% from July and 1.5% from last year with the median price of $356,700 increasing 14.9% year over year. Days on the market were level with July at 17 but down from 22 in Aug 2020.

Single-family home sales dropped 1.9% with the median existing single-family home price of $363,800 increasing 15.6% from August 2020. Inventories dropped 1.5% from July and 13.4% from last year, representing 2.6 months of current sales.

Lawrence Yun, NAR's chief economist, said, "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."

Factors Driving Inventory Supply

One factor that has driven sales since the pandemic hit is the low mortgage rate, which for the 30-year, conventional, fixed-rate loan was 2.84% in August and sub-3% through 2021. It was 3.11% in 2020. If things continue per plan, the mortgage rate will increase next year, making it that tiny bit harder for buyers and leading to some inventory increase.

The second factor that could increase inventories is the mortgage forbearance program, which is set to lapse today. Some of these homeowners may now opt to sell these properties, rather than start making payments again.

Zillow is looking for existing home sales growth of 5.1% this year, making it the strongest year for existing home sales since 2006. It now expects 5.93 million units to sell this year, up from 5.89 million estimated last month, so it’s an accelerating trend. This acceleration could be on account of existing home owners who had been holding out because of pandemic concerns deciding not to wait any longer to grab the sky-high prices.

Third, HUD stats seem to indicate that new home starts and completions are increasing substantially from last year, while permits are increasing faster than starts. So new projects are in the pipeline. Despite the land, labor and other constraints, the trend supports inventory growth.

Finally, price increases and limited inventories are keeping most buyers out of the market. Since buyers are researching but waiting, inventories are bound to build up.

Final Words

The August unemployment rate of 5.2%, although above pre-pandemic levels of 3.5% (in Feb 2020), is down substantially from the pandemic high of over 14% in May 2020. So, the ability to buy continues to improve. This along with positive demographics and increased staying at home is a highly conducive situation for a strong housing market. Given the above estimates, it appears that the situation will normalize in another six to nine months.

Some homebuilder stocks worth considering are # 1 (strong Buy) ranked MI Homes and #2 (Buy) ranked Landsea Homes and Meritage Homes.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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