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5 Homebuilding Stocks to Buy on a Rebound in Home Sales
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The U.S. homebuilding market is making a steady rebound on easing mortgage rates and inflation. This has also seen a jump in homebuilder confidence lately as investments in private construction projects continue to expand.
The National Association of Realtors reported on Feb 22 that existing home sales jumped a solid 3.1% in January to a seasonally adjusted annual rate of 4 million units. Despite being down 1.7% year over year, home sales are increasing sequentially.
Moreover, in January, the inventory of homes available for sale jumped to 1.01 million units, rising 3.1% year over year.
The homebuilding market took a major hit as the Federal Reserve increased interest rates by 525 basis points to take its benchmark policy rate to the current range of 5.25-5.60% since March 2022 in its bid to fight multi-decade high inflation.
Mortgage rates soared, which kept buyers away from the market despite existing demand for single-family homes. The Federal Reserve left interest rates unchanged for the first time in July 2023. However, that didn’t help the housing market.
The scene started changing finally at the end of the year after the Federal Reserve left interest rates unchanged and indicated that it would start rate cuts in 2024. The 30-year fixed mortgage rate started easing on these hopes after hitting 7.79% in October, a 23-year high.
Although the 30-year fixed mortgage rate is once again above the 6.8% mark, it is likely to decline further once the rate cuts come into effect.
The optimism surrounding rate cuts is also boosting homebuilder confidence. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose 4 points to hit 48 in February, its third straight month of increase and the highest reading since August 2023.
Also, investments in residential construction projects are on the rise. Construction spending increased 0.9% to $2 trillion in December, with investments in residential construction projects climbing 1.4%.
Our Choices
Given this situation, the housing market is projected to perform well in the near term as rate cuts are going to lower mortgage rates. Investing in homebuilding stocks thus appears to be a wise decision.
KB Home 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 8%. The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the past 60 days. KBH presently carries a Zacks Rank #2.
Toll Brothers Inc. 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. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.
Toll Brothers’ expected earnings growth rate for the current year is 2.7%. The Zacks Consensus Estimate for current-year earnings improved 1.7% over the past 60 days. Toll Brothers presently has a Zacks Rank #1.
M.D.C. Holdings, Inc. is engaged in homebuilding and financial services in the United States. MDC’s Homebuilding operations include land acquisition and development, home construction, sales and marketing, as well as customer service. The segment delivers single-family detached homes to first-time and move-up buyers under the name Richmond American Homes.
M.D.C. Holdings’ expected earnings growth rate for the current year is 1.7%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 60 days. MDC presently has a Zacks Rank #2.
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. To serve homebuilding customers, NVR operates a mortgage banking and title services business.
NVR’sexpected earnings growth rate for the current year is 4.6%. The Zacks Consensus Estimate for current-year earnings has improved 16.6% over the past 60 days. NVR presently sports a Zacks Rank #1.
Century Communities, Inc. 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 Communities’expected earnings growth rate for the current year is 24.4%. The Zacks Consensus Estimate for current-year earnings has improved 14.6% over the past 60 days. CCS presently sports a Zacks Rank #1.
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5 Homebuilding Stocks to Buy on a Rebound in Home Sales
The U.S. homebuilding market is making a steady rebound on easing mortgage rates and inflation. This has also seen a jump in homebuilder confidence lately as investments in private construction projects continue to expand.
The National Association of Realtors reported on Feb 22 that existing home sales jumped a solid 3.1% in January to a seasonally adjusted annual rate of 4 million units. Despite being down 1.7% year over year, home sales are increasing sequentially.
Moreover, in January, the inventory of homes available for sale jumped to 1.01 million units, rising 3.1% year over year.
The homebuilding market took a major hit as the Federal Reserve increased interest rates by 525 basis points to take its benchmark policy rate to the current range of 5.25-5.60% since March 2022 in its bid to fight multi-decade high inflation.
Mortgage rates soared, which kept buyers away from the market despite existing demand for single-family homes. The Federal Reserve left interest rates unchanged for the first time in July 2023. However, that didn’t help the housing market.
The scene started changing finally at the end of the year after the Federal Reserve left interest rates unchanged and indicated that it would start rate cuts in 2024. The 30-year fixed mortgage rate started easing on these hopes after hitting 7.79% in October, a 23-year high.
Although the 30-year fixed mortgage rate is once again above the 6.8% mark, it is likely to decline further once the rate cuts come into effect.
The optimism surrounding rate cuts is also boosting homebuilder confidence. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose 4 points to hit 48 in February, its third straight month of increase and the highest reading since August 2023.
Also, investments in residential construction projects are on the rise. Construction spending increased 0.9% to $2 trillion in December, with investments in residential construction projects climbing 1.4%.
Our Choices
Given this situation, the housing market is projected to perform well in the near term as rate cuts are going to lower mortgage rates. Investing in homebuilding stocks thus appears to be a wise decision.
We have narrowed down our search to five homebuilding stocks such as KB Home (KBH - Free Report) , Toll Brothers Inc. (TOL - Free Report) , M.D.C. Holdings, Inc. , NVR, Inc. (NVR - Free Report) and Century Communities, Inc. (CCS - Free Report) . Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KB Home 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 8%. The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the past 60 days. KBH presently carries a Zacks Rank #2.
Toll Brothers Inc. 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. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.
Toll Brothers’ expected earnings growth rate for the current year is 2.7%. The Zacks Consensus Estimate for current-year earnings improved 1.7% over the past 60 days. Toll Brothers presently has a Zacks Rank #1.
M.D.C. Holdings, Inc. is engaged in homebuilding and financial services in the United States. MDC’s Homebuilding operations include land acquisition and development, home construction, sales and marketing, as well as customer service. The segment delivers single-family detached homes to first-time and move-up buyers under the name Richmond American Homes.
M.D.C. Holdings’ expected earnings growth rate for the current year is 1.7%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 60 days. MDC presently has a Zacks Rank #2.
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. To serve homebuilding customers, NVR operates a mortgage banking and title services business.
NVR’sexpected earnings growth rate for the current year is 4.6%. The Zacks Consensus Estimate for current-year earnings has improved 16.6% over the past 60 days. NVR presently sports a Zacks Rank #1.
Century Communities, Inc. 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 Communities’expected earnings growth rate for the current year is 24.4%. The Zacks Consensus Estimate for current-year earnings has improved 14.6% over the past 60 days. CCS presently sports a Zacks Rank #1.