The U.S. housing industry is off to a good start in 2020, as is evident from solid homebuilding statistics. Yesterday, the Commerce Department issued another important housing indicator that must have further boosted investors’ confidence in the industry.
The U.S. Census Bureau, and Department of Housing and Urban Development jointly stated that sales of newly constructed single-family homes — accounting for roughly 10% of U.S. home sales — marked a 13-year high in January. Moreover, the reading surpassed market expectation by 7%, signaling sturdy housing demand. The robust demand for single-family homes was undoubtedly driven by a strong job market, wage growth and near-record-low interest rates.
The recent data is pointing to housing market strength that can counter economic threats caused by coronavirus, tepid consumer spending and weak business investment. The Zacks Building Products - Home Builders industry has gained 11.8% against the S&P 500 Index’s fall of 2.7% year to date.
Highest New Home Sales Data Since July 2007
January new home sales increased 7% to a seasonally adjusted annual rate of 764,000 from the revised December 2019 rate of 708,000 units. Also, the sales pace was 18.6% higher than January 2019.
Regionally, the metric rose in each region on a monthly basis except South. Sales in the Northeast improved 4.8%, and that of Midwest and West increased 30.3% and 23.5%, respectively. Sales in South — accounting for bulk of transactions — dropped 4.4% in January. Notably, all the three regions mentioned above (barring South) increased more than 45% year over year.
Median sales prices in January were $348,200, which grew 7.4% month over month and 14% from the year-ago level. Average prices rose 7.8% from the prior month to $402,300 and 11.4% from January 2019.
Supply of new homes inched up 0.3% from December 2019 to 324,000 in January. However, housing inventory decreased 6.6% from the year-ago period. It would take just 5.1 months to deplete the current supply of homes, down from 5.5 months in December and 6.5 months in the comparable period last year.
Glance at a Few Recent Housing Stats
According to the Commerce Department data released on Feb 19, housing starts in January rose 21.4% on a year-over-year basis to 1.567 million units and surpassed analysts’ expectation by 10.6%. Residential building permits — an indicator of future construction activity — marked the highest reading since March 2007 to an annualized rate of 1.551 million units, up 17.9% year over year and 9.2% from a month ago. (Read more: Find Solace in U.S. Housing: 5 Top Stocks to Buy)
Existing-home sales also rose 9.6% for the second straight month in January to a seasonally-adjusted annual rate of 5.46 million from a year ago.
Confidence level among buyers for newly-built single-family homes remained strong at 74 points in February. The metric was 62 points in February 2019 and 75 in January 2020. The NAHB Chairman Dean Mon stated that steady job growth, rising wages and favorable rates are fueling demand. That said, regulatory constraints, shortage of labor and dearth of lots are hindering the production of affordable homes across the nation.
The above-mentioned data reflects strength of the U.S. housing market. However, stock markets are witnessing a decline in recent days owing to the outbreak of coronavirus, which has killed more than 2,800 people worldwide, mostly in China. To this end, it is important to note that luxury homebuilder Toll Brothers Inc. TOL highlighted that the coronavirus outbreak in China led to shortages of lighting fixtures and small appliances, prompting it to delay the sale of 11 homes in California, which is one of the company’s biggest markets. The company divulged this information on fiscal first-quarter earnings call.
Nonetheless, strong builder sentiments and rise in demand for affordable homes are expected to overcome the challenges on the back of resilient economic fundamentals. Lynn Franco, senior director of economic indicators at The Conference Board said, “Despite the decline in the Present Situation Index, consumers continue to view current conditions quite favorably. Consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.”
Stocks to Bet On
Backed by solid housing metrics and builders’ sentiments, we have shortlisted five top-ranked stocks from the housing space that investors may add to their portfolio. Notably, these stocks were picked with the help of the Zacks Stock Screener. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Five such housing stocks with encouraging prospects are D.R. Horton, Inc. DHI, PulteGroup, Inc. PHM, KB Home KBH, M.D.C. Holdings, Inc. MDC and Meritage Homes Corporation MTH.
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