This week, two sets of housing data for the month of June were released -- existing-home sales data from the National Association of Realtors (NAR) and new residential sales data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Existing Home Sales Decline
According to the NAR report, existing home-sales dipped 1.8% (from May) in June with only the Midwest witnessing an increase in sales. Median existing-home price for all housing types increased 6.5% from the year-ago period to $263,800 in June, reflecting a new peak and the 64th straight month of year-over-year gains.
Low Supply Hitting Existing Home Sales
Low supply was the key reason for the decline in existing-home sales. With supply remaining low and price continuing to increase, interested buyers are being forced to remain on the sidelines.
Housing inventory declined 0.5% at the end of June and was 7.1% lower than the year-ago period, representing a year-over-year decline for 25 consecutive months.
New Home Sales Up
Meanwhile, according to the Census Bureau and the U.S. Department of Housing and Urban Development, new single-family house sales were 610,000 in Jun 2017, up 0.8% from the revised rate of 605,000 in May and 9.1% above the year-ago estimate of 559,000.
Existing Home Sales Data a Cause for Concern?
Given the decline in existing-home sales, should one avoid investing in this sector? Not really -- according to the NAR report, demand remains strong with affordable listings being picked up immediately. Moreover, despite the market challenges, sales continue to track slightly above last year’s pace.
Not just this, promising housing starts data was released earlier this month by the Census Bureau and the U.S. Department of Housing and Urban Development for the month of Jun 2017. Privately-owned housing starts grew 8.3% from May 2017 and 2.1% from the year-ago period while single-family housing starts were up 6.3% compared to May. Building permits also increased (up 7.4% from May and 5.1% from Jun 2016) in Jun 2017.
Moreover, the home builders industry enjoys a good Zacks industry rank (Top 8% out of 256 industries). The industry has outperformed the broader market (S&P 500) year-to-date (YTD) as well. Favorable industry fundamentals, pent-up demand, job gains, income growth and relatively low mortgage interest rates should support housing sales.
KB Home (KBH - Free Report) : Los Angeles, CA-based KB Home is among the largest and most recognized homebuilding companies in the U.S. The company sells and builds new homes designed primarily for first-time, move-up and active adult homebuyers. KB Home’s focus is on first-time buyers, which represents the largest demand segment. The company has a strong earnings track record with results surpassing expectations in each of the last four quarters with an average surprise of 12.47%. A solid backlog and a favorable market environment bode well for KB Home which reported better-than-expected second quarter fiscal 2017 earnings along with raising its housing revenue guidance for the year. Earnings estimates for fiscal 2017 and fiscal 2018 are up 5.6% and 5.1%, respectively, over the last 30 days. YTD, the Zacks Rank #1 (Strong Buy) stock, has gained 46.6%, substantially outperforming the 29.9% rally of the industry it belongs to.
KBH also has a VGM style score of “A”. The VGM style score is a useful tool that allows investors to gain an insight into a stock’s strengths and weaknesses. While “V” stands for Value, “G” stands for Growth and “M” for Momentum -- the score is a weighted combination of these three metrics. Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or #2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
NVR, Inc. (NVR - Free Report) : Reston, VA-based NVR is one of the nation's largest homebuilding and mortgage banking companies. NVR, a Zacks Rank #1 stock has a pretty good earnings track record with the company surpassing expectations in three of the last four quarters. Earnings estimates are on the rise with 2017 and 2018 estimates up 7.3% and 4.2%, respectively, over the last 7 days. YTD, NVR stock has shot up 60.5%, significantly outperforming the industry it belongs to.
PulteGroup, Inc. (PHM - Free Report) : Atlanta, GA-based PulteGroup is one of the largest, versatile and most experienced homebuilders in the U.S. The company has a strong earnings track record having surpassed expectations in three of the last four quarters and meeting expectations in the remaining quarter. The company caters to all major buyer groups: first-time, move up and active adults. PulteGroup, which has a VGM score of “A”, is a Zacks Rank #2 stock.
YTD, PulteGroup stock is up 32.2%, surpassing the performance of the industry it belongs to.
M.D.C. Holdings, Inc. (MDC - Free Report) : Denver, CO-based M.D.C. is one of the largest homebuilders in the U.S. with its subsidiaries having homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Diego, Orange County, San Francisco Bay Area, Sacramento, Washington D.C., Baltimore, Orlando, Jacksonville, South Florida and Seattle. The company has surpassed earnings expectations in 3 of the last four quarters and will be reporting second quarter results on Aug 1.
The Zacks Rank #2 stock has a VGM score of “A” and has outperformed the industry it belongs to with shares gaining 37.8% YTD.
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