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4 Stocks to Watch as Homebuilding Market Making Steady Rebound
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The homebuilding industry suffered the most over the past two years as multi-decade high inflation compelled the Federal Reserve to adopt a strict monetary tightening policy. High mortgage rates and rising raw material and labor costs prevented buyers from investing in new homes despite high demand.
However, the housing market is showing signs of a slow but steady rebound, as inflation continues to cool and mortgage rates are easing. Although inflation is still above the Fed’s 2% target, it kept its benchmark policy rate steady in the range of 5.25-5.5% in its last three FOMC meetings after hiking it by 525 basis points since March 2022.
Moreover, cooling inflation has finally made Federal Reserve officials change their stance from hawkish to dovish and indicate multiple interest rate cuts in 2024.
Housing Market Poised to Grow
Expectations of a reduced risk-free market interest rate have led to a decrease in mortgage rates since November. Once rate cuts come into effect, the homebuilding market is expected to flourish further as lower borrowing cuts will help both homebuilders and buyers.
The optimism surrounding interest rate cuts this year has seen mortgage rates fall sharply over the past couple of months. The average rate on 30-year fixed mortgages was 6.93% last week. The average 30-year fixed mortgage rate was above 8% just a few months back.
Also, homebuilders are more confident about the future of the housing market in 2024. The National Association of Homebuilders/Wells Fargo Index reading showed that homebuilder confidence jumped to 44 in January, the highest level since September 2023 and up from 37 in December.
Housing starts also increased 7.6% year over year in December to 1.46 million units, surpassing the consensus estimate of 1.44 million units. Building permits increased 1.9% month over month and 6.1% year over year in December to 1.495 million units.
Pending home sales also jumped a solid 8.3% in December on a month-over-month basis. Demand for new homes, which was already there but had slowed drastically over the past couple of years, is rebounding once again as price pressures ease.
Stocks in Focus
Given this situation, the housing market is expected to perform well in 2024 as the Fed gears up to cut rates this year. Investing in homebuilding stocks thus appears to be a wise decision. We have narrowed down our search to four such homebuilding stocks. Each of these stocks carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes, Inc. (DFH - Free Report) is a homebuilding company. DFH operates principally in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. Dream Finders Homes is based in Jacksonville, FL.
Dream Finders Homes has an expected earnings growth rate of 2.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the last 90 days. DFH presently has a Zacks Rank #2.
PulteGroup (PHM - Free Report) engages in homebuilding and financial services businesses, primarily in the United States. PHM conducts operations through two primary business segments — Homebuilding (which accounted for 97.2% of 2021 total revenues) and Financial Services (2.8%). PulteGroup’s Homebuilding segment offers a wide variety of home designs, including single-family detached, townhouses, condominiums and duplexes at different prices, with a variety of options and amenities to all major customer segments: first-time, move-up and active adult.
PulteGroup’s expected earnings growth rate for the current year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days. PHM has a Zacks Rank #2.
D.R. Horton (DHI - Free Report) is one of the leading national homebuilders, primarily engaged in the construction and 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 2.5%. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the past 90 days. DHI has a Zacks Rank #3.
KB Home (KBH - Free Report) is a well-known homebuilder in the United States and one of the largest in the state. KBH’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 90 days. KBH currently carries a Zacks Rank #3.
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4 Stocks to Watch as Homebuilding Market Making Steady Rebound
The homebuilding industry suffered the most over the past two years as multi-decade high inflation compelled the Federal Reserve to adopt a strict monetary tightening policy. High mortgage rates and rising raw material and labor costs prevented buyers from investing in new homes despite high demand.
However, the housing market is showing signs of a slow but steady rebound, as inflation continues to cool and mortgage rates are easing. Although inflation is still above the Fed’s 2% target, it kept its benchmark policy rate steady in the range of 5.25-5.5% in its last three FOMC meetings after hiking it by 525 basis points since March 2022.
Moreover, cooling inflation has finally made Federal Reserve officials change their stance from hawkish to dovish and indicate multiple interest rate cuts in 2024.
Housing Market Poised to Grow
Expectations of a reduced risk-free market interest rate have led to a decrease in mortgage rates since November. Once rate cuts come into effect, the homebuilding market is expected to flourish further as lower borrowing cuts will help both homebuilders and buyers.
The optimism surrounding interest rate cuts this year has seen mortgage rates fall sharply over the past couple of months. The average rate on 30-year fixed mortgages was 6.93% last week. The average 30-year fixed mortgage rate was above 8% just a few months back.
Also, homebuilders are more confident about the future of the housing market in 2024. The National Association of Homebuilders/Wells Fargo Index reading showed that homebuilder confidence jumped to 44 in January, the highest level since September 2023 and up from 37 in December.
Housing starts also increased 7.6% year over year in December to 1.46 million units, surpassing the consensus estimate of 1.44 million units. Building permits increased 1.9% month over month and 6.1% year over year in December to 1.495 million units.
Pending home sales also jumped a solid 8.3% in December on a month-over-month basis. Demand for new homes, which was already there but had slowed drastically over the past couple of years, is rebounding once again as price pressures ease.
Stocks in Focus
Given this situation, the housing market is expected to perform well in 2024 as the Fed gears up to cut rates this year. Investing in homebuilding stocks thus appears to be a wise decision. We have narrowed down our search to four such homebuilding stocks. Each of these stocks carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes, Inc. (DFH - Free Report) is a homebuilding company. DFH operates principally in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. Dream Finders Homes is based in Jacksonville, FL.
Dream Finders Homes has an expected earnings growth rate of 2.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the last 90 days. DFH presently has a Zacks Rank #2.
PulteGroup (PHM - Free Report) engages in homebuilding and financial services businesses, primarily in the United States. PHM conducts operations through two primary business segments — Homebuilding (which accounted for 97.2% of 2021 total revenues) and Financial Services (2.8%). PulteGroup’s Homebuilding segment offers a wide variety of home designs, including single-family detached, townhouses, condominiums and duplexes at different prices, with a variety of options and amenities to all major customer segments: first-time, move-up and active adult.
PulteGroup’s expected earnings growth rate for the current year is 6.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days. PHM has a Zacks Rank #2.
D.R. Horton (DHI - Free Report) is one of the leading national homebuilders, primarily engaged in the construction and 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 2.5%. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the past 90 days. DHI has a Zacks Rank #3.
KB Home (KBH - Free Report) is a well-known homebuilder in the United States and one of the largest in the state. KBH’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 90 days. KBH currently carries a Zacks Rank #3.