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3 Home-Building Stocks to Buy as the Housing Sector Recovers
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Last year was a dampener for aspiring home-owners. While mortgage rates and residential prices steadily went up, average monthly mortgage payments hit “never seen before” levels. Home shoppers, particularly first-time buyers, found it significantly difficult to realize their dream of affording a home.
The restrictive monetary policy employed by the Fed to tackle the four-decade-high inflation in the United States was almost singularly responsible for home prices shooting through the roof. However, with the general consensus that further rate hikes are well and truly behind us, and with the first rate cut expected around June 2024, mortgage rates are stabilizing, and the housing market may be staging a comeback.
New listings of homes for sale rose 12.9% year over year in the four weeks ending Feb 25, the sharpest uptick in nearly three years.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that new single-family houses in January 2024 had come in at an annual rate of 661,000 units. This is 1.5% above the revised December rate of 651,000.
For the housing sector to recover, a couple of things have to significantly improve at the current juncture. Inventories of homes for sale would have to go up considerably, which would, in turn, ease the upward pressure on home prices. With active listings remaining flat from a year ago, marking the first time in nine months the total number of homes for sale hasn’t declined, one may surmise that total inventory has taken a right turn.
Also, with the Fed about to bring the rates down and with mortgage rates already cooling off toward the end of 2023 and holding below 7% year to date in 2024, it is a second tick for the sector’s criteria for recovery.
However, even as mortgage rates improve, they are currently at a significantly high level. Demand continues to be weak, with mortgage-purchase applications down for four weeks in a row. While the sector may be on a path of recovery, potential buyers might want to wait for rates to go further down before making their decision.
This has also meant that home-builder stocks have reversed their slide and are currently picking up. The February reading for the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, rose from 44 to 48. A reading of 50 or above means more builders see good times ahead.
Thus, we have selected three home-builder stocks that are likely to gain ground in the ensuing months and should be looked into now. The stocks below flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Century Communities, Inc. (CCS - Free Report) is a company that designs, develops, constructs, markets, and sells single-family attached and detached homes.
CCS’ expected earnings growth rate for the current year is 24.4%. The Zacks Consensus Estimate for its current-year earnings has improved 14.6% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
KB Home (KBH - Free Report) is a U.S.-based home-building company.
KBH’s expected earnings growth rate for the current year is 8%. The Zacks Consensus Estimate for its current-year earnings has improved 5.3% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
Toll Brothers, Inc. (TOL - Free Report) builds, markets, sells and arranges finance for a varied range of detached and attached homes in luxury residential communities in the United States.
TOL’s expected earnings growth rate for the current year is 7.8%. The Zacks Consensus Estimate for its current-year earnings has improved 8.9% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A.
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3 Home-Building Stocks to Buy as the Housing Sector Recovers
Last year was a dampener for aspiring home-owners. While mortgage rates and residential prices steadily went up, average monthly mortgage payments hit “never seen before” levels. Home shoppers, particularly first-time buyers, found it significantly difficult to realize their dream of affording a home.
The restrictive monetary policy employed by the Fed to tackle the four-decade-high inflation in the United States was almost singularly responsible for home prices shooting through the roof. However, with the general consensus that further rate hikes are well and truly behind us, and with the first rate cut expected around June 2024, mortgage rates are stabilizing, and the housing market may be staging a comeback.
New listings of homes for sale rose 12.9% year over year in the four weeks ending Feb 25, the sharpest uptick in nearly three years.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that new single-family houses in January 2024 had come in at an annual rate of 661,000 units. This is 1.5% above the revised December rate of 651,000.
For the housing sector to recover, a couple of things have to significantly improve at the current juncture. Inventories of homes for sale would have to go up considerably, which would, in turn, ease the upward pressure on home prices. With active listings remaining flat from a year ago, marking the first time in nine months the total number of homes for sale hasn’t declined, one may surmise that total inventory has taken a right turn.
Also, with the Fed about to bring the rates down and with mortgage rates already cooling off toward the end of 2023 and holding below 7% year to date in 2024, it is a second tick for the sector’s criteria for recovery.
However, even as mortgage rates improve, they are currently at a significantly high level. Demand continues to be weak, with mortgage-purchase applications down for four weeks in a row. While the sector may be on a path of recovery, potential buyers might want to wait for rates to go further down before making their decision.
This has also meant that home-builder stocks have reversed their slide and are currently picking up. The February reading for the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, rose from 44 to 48. A reading of 50 or above means more builders see good times ahead.
Thus, we have selected three home-builder stocks that are likely to gain ground in the ensuing months and should be looked into now. The stocks below flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Century Communities, Inc. (CCS - Free Report) is a company that designs, develops, constructs, markets, and sells single-family attached and detached homes.
CCS’ expected earnings growth rate for the current year is 24.4%. The Zacks Consensus Estimate for its current-year earnings has improved 14.6% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
KB Home (KBH - Free Report) is a U.S.-based home-building company.
KBH’s expected earnings growth rate for the current year is 8%. The Zacks Consensus Estimate for its current-year earnings has improved 5.3% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
Toll Brothers, Inc. (TOL - Free Report) builds, markets, sells and arranges finance for a varied range of detached and attached homes in luxury residential communities in the United States.
TOL’s expected earnings growth rate for the current year is 7.8%. The Zacks Consensus Estimate for its current-year earnings has improved 8.9% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A.