4 Top Stocks to Gain From a Solid Rebound in Homebuilding
The housing market appears to be making a solid rebound this year after suffering for months owing to the Fed’s aggressive monetary policy tightening campaign that saw mortgage rates soaring. However, the homebuilding market has been trying to stage a comeback amid soaring prices.
The scenario is likely to improve further in the coming months as the central bank also finally decided to keep its interest rates unchanged for the first time in more than a year.
This comes as the data released on Jun 27 showed that new home sales rose a solid 12.2% to a seasonally adjusted annual rate of 763,000 units in May, per the Commerce Department. This is also the highest level since February 2022.
Economists had projected new home sales to decline to a rate of 675,000 units. The new home sales data comes less than a week after the National Association of Realtors said that existing home sales rose 0.2% to a seasonally adjusted annual rate of 4.3 million in May.
The housing market is trying to get back on its feet after a torrid 2022 as borrowing costs have somewhat stabilized. This saw buyers once again flocking to the markets.
Naturally, homebuilders have the much-required confidence to start new projects. The National Association of Home Builders/Wells Fargo preliminary Housing Market Index (HMI) for June came up with a reading of 55, marking the sixth straight month of a boost in homebuilders’ confidence.
This is also the first time since July 2022 that homebuilders’ confidence has gone above the 50 mark.
Moreover, the Commerce Department said on Jun 20 that housing starts jumped a solid 21.7% in May to a seasonally adjusted annual rate of 1.631 million units, hitting a 13-month high. This is also the highest level since April 2022. May’s jump was also the largest percentage gain since October 2016.
Single-family housing starts rose 18.5%, while multi-family starts jumped 28.1%.
Also, permits for future construction, or building permits, rose 5.2% in May to its highest level since October at 1.491 million units. Building permits for single-family homes soared 4.8%, while multi-family permits advanced 7.8%.
With the Fed now pausing its interest rate hike, borrowing will be easier. This bodes well for the homebuilding market.
Our Choices
Given this scenario, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank poised to gain from the rise in spending on construction projects. We narrowed down our search to four such stocks. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Toll Brothers Inc. TOL builds single-family detached and attached home communities; master-planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania, and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.
Toll Brothers’ expected earnings growth rate for the current year is 6.7%. The Zacks Consensus Estimate for current-year earnings improved 22.5% over the past 60 days.
KB Home KBH is a well-known homebuilder in the United States. KB Homes’ revenues are generated from Homebuilding (accounting for 99.7% of fiscal 2021 total revenues) and Financial Services (0.3%) operations. KBH’s homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.
KB Home’s expected earnings growth rate for next year is 5.7%. The Zacks Consensus Estimate for current-year earnings has improved 9.3% over the past 60 days.
Lennar Corporation LEN is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar Corporation’s expected earnings growth rate for next year is 6.3%. The Zacks Consensus Estimate for current-year earnings has improved 24.6% over the past 60 days.
M.D.C. Holdings, Inc. MDC is engaged in homebuilding and financial services in the United States. MDC’s Homebuilding operations include land acquisition and development, home construction, sales and marketing as well as customer service. The segment delivers single-family detached homes to first-time and move-up buyers under the name “Richmond American Homes.”
M.D.C. Holdings’ expected earnings growth rate for next year is 14.4%. The Zacks Consensus Estimate for current-year earnings has improved 39.8% over the past 60 days.
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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
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Lennar Corporation (LEN) : Free Stock Analysis Report
M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
