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4 Stocks to Buy on a Growing Homebuilding Market

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The U.S. homebuilding market has been doing well for some time, with the pandemic having not affected the industry much. This saw homebuilder sentiment hit a high in October. According to the National Association of Home Builders/Wells Fargo Housing Market Index, confidence in the homebuilding market in October recorded the largest monthly increase since November 2020. 

October’s jump in homebuilder sentiment comes on high demand for new single-family homes and despite supply chain issues. Much like the other industries, homebuilding was hit badly following the coronavirus outbreak. However, after three months of battering, things started changing as more people flocked to buy a new home.

Homebuilding Sentiment on a High

The upbeat sentiment in the homebuilding market has continued since June last year. Although, the market somewhat slowed down earlier this year on rising raw material prices, labor costs and higher interest rates, demand for new single-family homes have been on the rise.

This has given a boost to the confidence of homebuilders. According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder confidence rose 4 points to a reading of 80 from September’s reading of 76. This is also 4 points above analysts’ predictions that the indicator would remain at 76.

Although it is still 5 points down from October 2020’s reading of 85 and November 2020’s record high of 90, the confidence is still a lot higher amid this ongoing supply chain crisis. Anything above 50 is considered good.

Among the three main components of the index, sales conditions jumped 5 points to 87, while traffic rose 4 points to 65. Expectations for sales in the coming six months rose 3 points to 84.

Homebuilding Market on a High

Homebuilders are struggling with supply-chain disruptions and labor shortage.. This is causing a delay in completion and putting upward pressure on home prices and building material.

However, it is higher demand and people’s willingness to buy that has been helping lift the sentiment of homebuilders.

The homebuilding market did exceeding well during the peak of the pandemic. Demand for new homes increased as many wanted to move to sparsely populated places on fears of coronavirus. Record-low interest rates last year also helped people buy homes at cheaper prices.

Mortgage rates started escalating from the beginning of the year and raw materials and labor cost rose. This somewhat slowed down the housing market. However, things have been changing once again. The National Association of Realtors said last month that U.S. new home sales jumped 1.5% in August to a seasonally adjusted annual rate of 740,000 after increasing 1% in July at a seasonally adjusted annual rate of 708,000.

There were already fewer homes compared to the high demand before the pandemic, and now fewer homeowners are willing to list their homes for sale. This is further helping to boost home prices and the trend is likely to continue in the days to come.

Our Choices

Homebuilder sentiment hitting a record high in October is an indication that buyers are showing interest with the economy continuing to reopen. This is thus an opportune time to invest in stocks that likely to benefit from the boom in the homebuilding market.

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 80%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days.  Toll Brothers has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dream Finders Homes, Inc. (DFH - Free Report) is into homebuilding business in the United States. The company builds, designs and sells single family homes in Jacksonville, Orlando, Denver, the Washington D.C. metropolitan area, and Austin, as well as in Charlotte and Raleigh. 

The company’s expected earnings growth rate for next year is 26.3%. The Zacks Consensus Estimate for current-year earnings improved 2.9% over the past 60 days. Dream Finders sports a Zacks Rank #1.

CRH PLC (CRH - Free Report) manufactures cement, concrete products, aggregates, roofing, instulation and other building materials.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 2.7% over the past 60 days.  CRH Plc has a Zacks Rank #2 (Buy).

Beacon Roofing Supply, Inc. (BECN - Free Report) is the largest distributor of residential and non-residential roofing materials in the United States and Canada. The company also distributes other complementary building products, including siding, windows, specialty exterior building products, insulation, and waterproofing systems for residential and non-residential building exteriors.

The company’s expected earnings growth rate for the current year is 85.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past 60 days.  Beacon Roofing has a Zacks Rank #2.