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3 Home-Building Stocks to Buy on the Housing Sector Revival

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Aspiring homeowners did not have a great 2023. While mortgage rates and residential prices steadily went up, average monthly mortgage payments hit levels that were unheard of. People on the lookout to buy homes and existing homeowners with a flexible mortgage plan felt the heat.

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 first rate cut expected sometime later this year, mortgage rates are stabilizing, and the housing market may be staging a comeback.

Per the National Association of Realtors (“NAR”), pending home sales in March climbed 3.4%, while its index number coming in at 78.2, registered the highest in the past 12 months. Total existing home sales, which include single-family homes, town-homes and condominiums, declined 4.3% in the same period.

Total housing inventory came in at 1.11 million units, increasing 4.7% from February and 14.4% from a year ago. This is a significant development, because with inventories of homes for sale going up, the upward pressure on home prices would decrease.

While home sales have been lingering at 30-year lows, the NAR, in its quarterly report, forecasts that existing home sales will rise 9% in 2024 to 4.46 million and another 13.2% in 2025 to 5.05 million. Housing starts are expected to rise 1.2% in 2024 to 1.43 million and 4.9% to 1.5 million in 2025 (from 2024).

Also, with the Fed about to bring the rates down and with mortgage rates already cooling off toward the end of 2023 and holding relatively low year to date, 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 actually go down before making their investment call.

This has also meant that home-builder stocks have reversed their slide and are currently picking up. The April reading for the National Association of Home Builders/ Wells Fargo Housing Market Index, which tracks builder sentiment, was unchanged at 51. 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 28.1%. The Zacks Consensus Estimate for its current-year earnings has improved 0.7% over the past 60 days. The company has a Zacks Rank #2 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 13.9%. The Zacks Consensus Estimate for its current-year earnings has improved 5.5% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of B.

Dream Finders Homes, Inc. (DFH - Free Report) is the holding company for Dream Finders Homes LLC, which engages in home-building business across the United States.

DFH’s expected earnings growth rate for the current year is 23.7%. The Zacks Consensus Estimate for its current-year earnings has improved 22.8% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of A.


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