The U.S. homebuilding market is trying to make a steady rebound as inflation cools and mortgage rates ease from multi-decade highs. Buyers are once again flocking markets and demand for new homes is driving sales.

Housing Market Looks Promising

The National Association of Home Builders said on Mar 18 that the NABH/Wells Fargo Housing Market Index of builder confidence jumped to 51 in March from an unrevised 48 in February. Economists had expected homebuilder confidence to remain unchanged for the month.

This was followed by a separate report from the Census Bureau on Mar 19 that stated that building permits increased to a seasonally adjusted annual rate (SAAR) of 1,518,000 in February, up 1.9% month over month from January’s total of 1,489,000.

Year over year, building permits increased 2.4% in February. Single-family authorizations jumped 1% month over month in February to 1,031,000.

Also, housing starts jumped a solid 10.7% month over month in February to 1,521,000. Year over year, housing starts climbed 5.9%. Single-family housing starts jumped 11.6% to a seasonally adjusted annual rate of 1,129,000.

A solid jump in building permits, housing starts and homebuilder confidence hints at a solidly rebounding housing market after suffering for over a year.

Demand for single-family homes was already there but higher mortgage rates, owing to the Federal Reserve’s stringent monetary policy, took a toll on home sales.

The Federal Reserve has hiked interest rates by 525 basis points since March 2022, taking its benchmark policy rate to the current range of 5.25-5.5% to curb four-decade-high inflation.

Traffic slowed particularly during the second half of 2023 when the 30-year fixed mortgage rate climbed to 7.79%, hitting a 23-year high. The Federal Reserve has left interest rates unchanged since October as inflation eased sharply from its peak of 9.1% in June 2022.

The 30-year fixed mortgage rate averaged 6.74% for the week ended Mar 14. Higher demand is once again driving sales.

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 Century Communities, Inc. (CCS Quick QuoteCCS - Free Report) , Dream Finders Homes, Inc. (DFH Quick QuoteDFH - Free Report) , KB Home (KBH Quick QuoteKBH - Free Report) , M.D.C. Holdings, Inc. and NVR, Inc. (NVR Quick QuoteNVR - 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.

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 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.

Dream Finders Homes 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 12.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 26% over the past 60 days. DFH presently has a Zacks Rank #1.

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, townhomes and condominiums.

KB Home’s expected earnings growth rate for the next year is 8%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. KBH presently carries a Zacks Rank #2.

M.D.C. Holdings 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 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.