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Builder Sentiment Climbs Above Breakeven: 5 Top Housing Picks
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Builder confidence in the market for newly constructed single-family homes surged above the breakeven point in March, marking the fourth consecutive monthly gain. The upside reflects a persistent shortage of existing inventory, which continues to steer buyers toward new home construction. Also, robust demand and mortgage rates staying below peak levels, as witnessed last fall, have contributed to the heightened sentiment among builders.
Given the uptrend, let's add some notable homebuilders like Century Communities, Inc. (CCS - Free Report) , Dream Finders Homes, Inc. (DFH - Free Report) , NVR, Inc. (NVR - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and KB Home (KBH - Free Report) that have been gaining from their fundamental strength and the tailwinds mentioned above.
Key Takeaways
Builder confidence in newly built single-family homes rose by three points in March from February to reach a level of 51, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the first time the sentiment level has surpassed the breakeven point of 50 since last July.
March saw gains across all three major HMI indices. The HMI index measuring current sales conditions increased by four points to 56. The component gauging sales expectations for the next six months rose by two points to 62, while the measure of traffic from prospective buyers grew by two points to 34.
Analyzing the three-month moving averages for regional HMI scores, the Northeast saw a two-point increase to 59, the Midwest gained five points to 41, the South rose by four points to 50 and the West recorded a five-point gain to 43.
The Federal Reserve is anticipated to announce future rate cuts in the second half of 2024. This will lead to lower financing costs, attracting many prospective buyers into the market. However, home-building activity is expected to increase, causing builders to face challenges with rising material prices, particularly for lumber.
Despite mortgage rates falling below 7% since mid-December, builders are scaling back on reducing home prices to boost sales. In March, 24% of builders reported cutting home prices, down from 36% in December 2023, marking the lowest share since July 2023. However, the average price reduction held steady in March at 6% for the ninth straight month. The utilization of sales incentives remains stable, with 60% of builders offering some form of incentive in March, a trend that has persisted between 58% and 62% since last September.
According to Carl Harris, NAHB chairman, buyer demand remains strong, with more consumers expected to enter the market if mortgage rates continue to decrease. Meanwhile, builders face challenges such as a shortage of buildable lots, skilled labor and new restrictive codes, all of which contribute to increased building costs.
Key Homebuilding Stocks
Adding some homebuilding stocks to your portfolio seems to be a reasonable move at this point, given solid demand. With the help of the Zacks Stock Screener, we have zeroed in on five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) with favorable metrics. A top Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translate into rapid price appreciation.
CCS’ earnings per share (EPS) estimates for 2024 have increased to $10.06 from $8.78 in the past 60 days. Earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 49.2%. Earnings for 2024 are expected to grow 24.4% year over year.
DFH: This Jacksonville, FL-based homebuilder currently sports a Zacks Rank #1. DFH’s shares have gained 194.2% in the past year.
Dream Finders Homes’ EPS estimates for 2024 have increased to $3.14 from $2.81 in the past 30 days. Earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 144.8%. Earnings for 2024 are expected to grow 12.5% year over year.
NVR: Headquartered in Reston, VA, this homebuilder also carries a Zacks Rank #1. The stock has rallied 41.8% in the past year.
NVR’s EPS estimates for 2024 have increased to $484.48 from $471.75 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 8.1%. Earnings for 2024 are expected to grow 4.6% year over year.
TOL: This Horsham, PA-based homebuilder currently flaunts a Zacks Rank #1. Shares have skyrocketed 111.1% over the past year.
TOL’s EPS estimates for 2024 have increased to $13.72 from $12.23 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 30.2%. Earnings for 2024 are expected to grow 11% year over year.
KBH: Based in Los Angeles, CA, this homebuilder also carries a Zacks Rank #2. The stock has increased 91.2% in the past year.
KBH’s EPS estimates for 2024 have increased to $7.59 from $7.52 in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 32.4%. Earnings for 2024 are expected to grow 8% year over year.
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Builder Sentiment Climbs Above Breakeven: 5 Top Housing Picks
Builder confidence in the market for newly constructed single-family homes surged above the breakeven point in March, marking the fourth consecutive monthly gain. The upside reflects a persistent shortage of existing inventory, which continues to steer buyers toward new home construction. Also, robust demand and mortgage rates staying below peak levels, as witnessed last fall, have contributed to the heightened sentiment among builders.
Given the uptrend, let's add some notable homebuilders like Century Communities, Inc. (CCS - Free Report) , Dream Finders Homes, Inc. (DFH - Free Report) , NVR, Inc. (NVR - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and KB Home (KBH - Free Report) that have been gaining from their fundamental strength and the tailwinds mentioned above.
Key Takeaways
Builder confidence in newly built single-family homes rose by three points in March from February to reach a level of 51, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the first time the sentiment level has surpassed the breakeven point of 50 since last July.
March saw gains across all three major HMI indices. The HMI index measuring current sales conditions increased by four points to 56. The component gauging sales expectations for the next six months rose by two points to 62, while the measure of traffic from prospective buyers grew by two points to 34.
Analyzing the three-month moving averages for regional HMI scores, the Northeast saw a two-point increase to 59, the Midwest gained five points to 41, the South rose by four points to 50 and the West recorded a five-point gain to 43.
Fed's Expected Rate Cuts to Spur Housing Market Amid Rising Costs
The Federal Reserve is anticipated to announce future rate cuts in the second half of 2024. This will lead to lower financing costs, attracting many prospective buyers into the market. However, home-building activity is expected to increase, causing builders to face challenges with rising material prices, particularly for lumber.
Despite mortgage rates falling below 7% since mid-December, builders are scaling back on reducing home prices to boost sales. In March, 24% of builders reported cutting home prices, down from 36% in December 2023, marking the lowest share since July 2023. However, the average price reduction held steady in March at 6% for the ninth straight month. The utilization of sales incentives remains stable, with 60% of builders offering some form of incentive in March, a trend that has persisted between 58% and 62% since last September.
According to Carl Harris, NAHB chairman, buyer demand remains strong, with more consumers expected to enter the market if mortgage rates continue to decrease. Meanwhile, builders face challenges such as a shortage of buildable lots, skilled labor and new restrictive codes, all of which contribute to increased building costs.
Key Homebuilding Stocks
Adding some homebuilding stocks to your portfolio seems to be a reasonable move at this point, given solid demand. With the help of the Zacks Stock Screener, we have zeroed in on five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) with favorable metrics. A top Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translate into rapid price appreciation.
Image Source: Zacks Investment Research
CCS: This Greenwood Village, Colorado-based homebuilder currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The stock has surged 50.9% in the past year.
CCS’ earnings per share (EPS) estimates for 2024 have increased to $10.06 from $8.78 in the past 60 days. Earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 49.2%. Earnings for 2024 are expected to grow 24.4% year over year.
DFH: This Jacksonville, FL-based homebuilder currently sports a Zacks Rank #1. DFH’s shares have gained 194.2% in the past year.
Dream Finders Homes’ EPS estimates for 2024 have increased to $3.14 from $2.81 in the past 30 days. Earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 144.8%. Earnings for 2024 are expected to grow 12.5% year over year.
NVR: Headquartered in Reston, VA, this homebuilder also carries a Zacks Rank #1. The stock has rallied 41.8% in the past year.
NVR’s EPS estimates for 2024 have increased to $484.48 from $471.75 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 8.1%. Earnings for 2024 are expected to grow 4.6% year over year.
TOL: This Horsham, PA-based homebuilder currently flaunts a Zacks Rank #1. Shares have skyrocketed 111.1% over the past year.
TOL’s EPS estimates for 2024 have increased to $13.72 from $12.23 in the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 30.2%. Earnings for 2024 are expected to grow 11% year over year.
KBH: Based in Los Angeles, CA, this homebuilder also carries a Zacks Rank #2. The stock has increased 91.2% in the past year.
KBH’s EPS estimates for 2024 have increased to $7.59 from $7.52 in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 32.4%. Earnings for 2024 are expected to grow 8% year over year.