After last month’s record-breaking slump due to the coronavirus outbreak, optimism among homebuilders rose in May. Per National Association of Home Builders (NAHB), confidence in the housing market for single family, newly-built homes rose 7 points to a reading of 37 this month.
Meanwhile, builders’ sentiment crashed an unprecedented 42 points in April as the pandemic shut down much of the economy and resulted in massive job losses. The U.S. economy reported a record 20.537 million job losses in April. Also, the homebuilder confidence index dropped below the coveted 50 mark for the first time in April since 2014.
Nonetheless, in May, the indicator that measures current home sales conditions increased 6 points to 42. What’s more, expectations of more sales in the next six months jumped 10 points to 46 and the index that tracks buyer traffic increased 8 points to 21.
Regionally, homebuilders’ sentiment improved 8 points to 42 in the South, 7 points to 32 in the Midwest, and 12 points to 44 in the West.
NAHB chief economist Robert Dietz acknowledged that there are problems like high unemployment level and supply side bottlenecks like shortage of loans for home builders and less availability of building materials. But he believes that nationwide lifting of stay-at-home orders and subsequently the return of more furloughed workers to work would boost productivity and help the housing industry to expand.
In fact, the spring home-buying season isn’t lost completely as a greater number of home buyers recently started to search for new homes. And why not? Mortgage applications for loans needed to finance the purchase of a house have picked up for four straight weeks, per the Mortgage Bankers Association. Realtor.com added that number of searches for single family homes and condos are up 30% in recent times.
Danielle Hale, chief economist at Realtor.com, said that “data suggests that home shoppers who had paused their search are now picking it back up, and the spring homebuying season has merely been pushed into the summer months.”
Last but not the least, mortgage rates are at an all-time low, which in turn has been a blessing in disguise for the housing market. It is quite obvious that lower cost of home financing will prop up demand among potential buyers.
Notably, mortgage bills are low primarily due to historically low interest rates. Policy makers had trimmed benchmark federal funds rate a full percentage point to a range of zero to 0.25% in March, in order to pump cash into the financial system and help banks provide more loans to businesses and households.
5 Potential Gainers
Given the positives, keeping an eye on solid housing-related stocks, which can make the most of the improved homebuilder sentiment, seems judicious. Here’re five of them –
D.R. Horton, Inc.
(DHI - Free Report
) operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West regions in the United States. The company currently has a Zacks Rank #3 (Hold).
With accretive acquisitions, robust backlog and a well-stocked inventory of land, lots and homes in place, D.R. Horton is expected to perform well in fiscal 2020. The company’s expected earnings growth rate for the current year is 6.8%.
(LEN - Free Report
) is engaged in homebuilding and financial services in the United States. Homebuilding operations (accounting for 93.4% of fiscal 2019 total revenues) include the sale and construction of single-family attached and detached homes. The company currently has a Zacks Rank #3.
Lennar is poised to gain from strategic land investments and improving SG&A leverage. The company’s expected earnings growth rate for the current quarter is 7.7%.
Ethan Allen Interiors Inc
. (ETH - Free Report
) is a leading interior design company and manufacturer and retailer of quality home furnishings.
The company offers free interior design service to clients and sells a full range of furniture products and decorative accessories through ethanallen.com.
The Zacks Rank #3 company’s expected earnings growth rate for the next year is a whopping 475%.
The Lovesac Company
(LOVE - Free Report
) retails home furnishing products. The company offers alternative furniture store, sectionals, bean bags, bean bag chairs as well as accessories such as blankets, foot sacs and throw pillows.
(NVR - Free Report
) is engaged in the construction and sale of single-family detached homes, town homes and condominium buildings.
NVR reported first-quarter 2020 results, wherein earnings topped the Zacks Consensus Estimate by 7%. Moreover, NVR’s solid business model will drive growth. Commitment toward boosting shareholder value through share buybacks also raises optimism.
This Zacks Rank #3 company’s expected earnings growth rate for the next year is 5.8%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.