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Homebuilding Industry Driving Construction Spending: 4 Picks

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The homebuilding industry has played a major role in driving spending on construction projects. Demand for new homes has seen home sales skyrocket over the past year, encouraging homebuilders to invest more in construction projects.

Higher spending on construction projects at the same time indicates that the U.S. economy is on track for a steady recovery, despite rising costs. Against this backdrop, stocks like D.R. Horton (DHI - Free Report) , Lennar Corporation (LEN - Free Report) , Century Communities (CCS - Free Report) and NVR, Inc (NVR - Free Report) are likely to benefit.

Construction Spending Increases

The Commerce Department said on Apr 1 that spending on construction projects in the United States increased 0.5% in February to an annual rate of $1.704 trillion after rising 1.6% to a revised rate of $1.696 trillion in January.

Although this is lower than January’s growth and economists’ expectations of a 1% rise, the good sign is that spending has continued despite rising costs and higher interest rates. According to the report, spending on private construction projects increased 0.8% to $1.354 trillion. This included a 1.1% rise in spending on the construction of homebuilding projects and a 0.2% increase in non-residential private construction projects.

However, spending on public construction declined 0.4% to $350.7 billion. This was primarily because spending on both educational and highway construction projects fell 1.3% each.

Homebuilding Market on Solid Ground

The homebuilding market has been the mainstay of construction spending for some time now. Demand for new homes was already high and the pandemic gave a further boost as people scrambled to buy new homes as markets reponed since many wanted to move to less densely populated places.

This saw demand soaring, giving a boost to homebuilders’ confidence that saw them investing more in construction projects. Although sales of new homes fell in February, the overall market is on solid ground.

Demand for single-family homes has been on the rise almost throughout 2021, making it a great year for the homebuilding industry. This is despite rising prices of raw materials and higher labor costs and mortgage rates.

Another reason behind homebuilders investing more in new home projects is that they had anticipated interest rates would increase and more people would buy homes in the near term.  Further, future rate hikes would slow the pace of purchases.

Our Choices

In terms of overall construction activity, homebuilding remains a bright area. Private residential construction spending picked up to cater to the escalating demand for new homes, thus making for the right opportunity to invest in homebuilding stocks.

D.R. Horton is one of the leading national homebuilders, primarily engaged in the construction and the sale of single-family houses both in the entry-level and move-up markets. DHI’s operations are spread over 91 markets across 29 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States. D.R. Horton’s houses are sold under the brand names D.R. Horton - America’s Builder, Emerald Homes, Express Homes and Freedom Homes.

D.R. Horton’s expected earnings growth rate for the current year is 39.2%. The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 60 days.  DHI has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lennar Corporation is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily. Despite the varied product portfolio, homebuilding remains Lennar Corporation’s core business.

Lennar Corporation’s expected earnings growth rate for the current year is 15.1%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. LEN carries a Zacks Rank #2.

Century Communities is a home building and construction company. CCS’s 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. Century Communitiesoperates in major metropolitan markets in Colorado, Texas and Nevada. Century Communities, Inc. is based in Greenwood Village, CO.

Century Communities’ expected earnings growth rate for the current year is 19.1%. The Zacks Consensus Estimate for current-year earnings has improved 5.1% over the past 60 days. CCS sports a Zacks Rank #1.

NVR, Inc. 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. In order to serve homebuilding customers, NVR operates a mortgage banking and title services business. NVR operates in two business segments:  Homebuilding and Mortgage Banking.

NVR’s expected earnings growth rate for the current year is 39.8%. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the past 60 days. NVR has a Zacks Rank #2.

In-Depth Zacks Research for the Tickers Above

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Lennar Corporation (LEN) - free report >>

D.R. Horton, Inc. (DHI) - free report >>

Century Communities, Inc. (CCS) - free report >>

NVR, Inc. (NVR) - free report >>