New home sales recovered more than expected in August, following two consecutive months of decline. Enhanced consumer confidence based on healthy job market conditions and a strong economy primarily raised the demand for new homes.
Therefore, it would be prudent to invest in some HVAC (heating, ventilation and air conditioning) and home furnishing stocks.
Before we handpick a few stocks for your consideration, let’s take a look at the facts that make the backdrop favorable for these stocks.
August New Home Sales Data
According to the Commerce department’s monthly report , new single-family home sales were at a seasonally adjusted annual rate of 629,000 in August. This represents an increase of 3.5% (± 13.7%) from July’s revised rate of 608,000 and 12.7% (± 20.7%) from the year-ago estimate of 558,000.
Median sales price, which decreased in August from the month before, was $320,200 and the average sales price was $388,400.
At the regional level, sales were mixed. Sales in Northeast, Midwest and West surged 47.8%, 2.7% and 9.1%, respectively. However, sales plunged 1.7% in the South.
There were 318,000 new ready-to-sell homes at the end of last month, which would take 6.1 months to deplete given the current sales rate.
Rising Material Costs and Interest Rates Pose Concerns
The nation’s ongoing trade war with China and other nations such as Canada and Mexico is increasing construction material prices, raising homebuilders’ concerns over affordability.
Moreover, the rising interest rate environment further adds to homebuilders’ woes, as higher rates on housing loans may keep buyers away. The Federal Reserve recently raised its benchmark rates by a quarter-point.
However, some factors have a positive impact on the housing market.
The homebuilders’ confidence reading for September remained firm at 67, as more consumers, especially newcomers and millennials, are entering the housing market . This could keep demand for new homes alive.
Decline in lumber prices is another advantage. “The recent decline in lumber prices from record-high levels earlier this summer is also welcome relief, although builders still need to manage construction costs to keep homes competitively priced.” National Association of Home Builders Chairman Randy Noel said.
Moreover, the Fed’s optimistic outlook for economic growth this year and the next, coupled with a strong job market and consumer confidence, will likely prompt more Americans to buy a property in the months to come.
Stocks to Buy
We have zeroed in on four stocks that are connected to the housing sector due to their nature of businesses. All the stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Restoration Hardware Holdings Inc. (RH - Free Report) is a luxury brand in the home furnishing space that offers a wide range of products for your home. The company carries a Zacks Rank #2 and its shares have gained 54.3% year to date. Restoration Hardware’s earnings are expected to grow 149.8% for 2018.
Comfort Systems USA, Inc. (FIX - Free Report) is a provider of heating, air conditioning and ventilation system services nationwide. Its services comprise installation, maintenance, repair and replacement. Comfort Systems earnings are expected to grow 56.3% for the current year and its shares have gained 26.7% year to date. The company sports a Zacks Rank #1.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Watsco, Inc. (WSO - Free Report) is an HVAC company. It carries a Zacks Rank #2 and its shares have gained 4.1% year to date. The company’s earnings are expected to grow 21.7% in the current year.
Tecnoglass Inc. (TGLS - Free Report) manufactures and sells architectural glass, windows and aluminum products for residential and commercial properties. The company holds a Zacks Rank #2 and its shares have gained 35.3% year to date. Tecnoglass’ earnings are expected to grow 106.2% for 2018.
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