The U.S. housing sector is on a roll, with an increasing number of Americans leveraging on the record-low mortgage rates. The latest pending home sales data for August reached the highest level on record as more Americans signed contracts to buy homes in the month, suggesting that the hot U.S. housing market will maintain the strong spell well into fall.
All-Time High Pending Home Sales
The National Association of Realtors or NAR’s Pending Home Sales Index — a forward looking indicator of home sales based on contact signing — soared 8.8% from July to 132.8 in August, hitting a record high, according to the NAR survey since January 2001. Contract signings are 24.2% higher from the year-ago period as well.
It is worth mentioning that August marks the fourth consecutive month of gains as well as the third year-over-year rise since the pandemic hit the housing market hard. All four major U.S. regions notched growth in August, with the West seeing the biggest improvement.
Apart from record pending home sales numbers, there were a couple of indicators showing continued strength in the housing market. Last week, the NAR released data that showed that sales of existing homes rose 2.4% in August from July to its highest level since 2006. Sales were up 10.5% from a year ago and back to pre-COVID-19 levels of early 2020. Also, the Commerce Department’s new home sales increased 4.8% in August from July and a remarkable 43% from August 2019.
Meanwhile, the NAR Housing Market Recovery Index indicated that the greatest recoveries have been recorded in the Seattle, Las Vegas, Boston, Denver and Philadelphia areas.
“Tremendously low mortgage rates – below 3% – have again helped pending home sales climb in August,” said Lawrence Yun, NAR’s chief economist. The average U.S. mortgage rate for a 30-year fixed loan is 2.9% for the week ending Sep 24, according to the latest Freddie Mac Primary Mortgage Market Survey. Although the rate is slightly up from 2.87% last week, it is the ninth consecutive week that the rate has been below 3%. This time last year, the 30-year fixed was 3.64%.
Rates have stayed relatively flat since the beginning of August, stuck in the 2.8% and 3% range. The Federal Reserve’s commitment to bond buying coupled with low-inflation forecasts have built pressure on mortgage rates, which is expected to continue through the year, aiding the U.S. housing further. The pending home sales report is generally considered a preview of what could be expected for existing-home sales in the coming months. Hence, the latest data showcases that the housing market is expected to fly high defying all odds in the coming months. It is worth mentioning here that this market is one of the few that has displayed stern resilience to the economic impacts of the coronavirus pandemic.
Will This Recovery Fizz Out Soon?
Builders are definitely ramping up production but not enough to meet demand. This is pushing prices higher. The tight supply pushed the median price of an existing home sold in August to a record high of $310,600, up 11.4% from a year ago. There were 1.49 million existing homes for sale at the end of August, down 18.6% annually to a 3.0-month supply.
Market pundits are of the opinion that this imbalance of supply and demand will hurt affordability soon, thereby impacting home ownership rates as well in the future.
Picking the Right Stocks
Owing to the volatile monthly housing figures, investment in the housing sector at times becomes difficult. Investors can still bet on some housing stocks that can counter market headwinds and come up with solid bottom-line performance. But it might be an uphill task to pick the right stocks for greater investment rewards amid all odds. This is where our Zacks Stock Screener comes in handy.
Importantly, the Zacks Building Products – Home Builders industry currently carries a Zacks Industry Rank #17, which places it in the top 7% of more than 250 Zacks industries, mirroring analysts’ optimism over the market’s earnings growth potential. Hence, investing in this space might prove profitable right now.
Here, we have selected five stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy), justifying their strong fundamentals. A solid sector rank and a VGM Style Score of B or better is quite a combination to look out for in stocks, especially for investors beefing up their portfolio amid uncertainty. You can see the complete list of today’s Zacks #1 Rank stocks here.
Meritage Homes Corporation MTH: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. The Zacks Consensus Estimate for its current-year earnings has moved up 1.5% over the past 30 days.
Zacks Rank #1
VGM Score A
Price Performance Over Past 6 Months: Up 257.8%
Expected EPS Growth Rate for 2020: 49.5%
Lennar Corp. LEN: Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The Zacks Consensus Estimate for its current-year earnings has risen 12.3% over the past 30 days.
Zacks Rank #1
VGM Score B
Price Performance Over Past 6 Months: Up 144.4%
Expected EPS Growth Rate for 2020: 25.4%
Beazer Homes USA, Inc. BZH: Headquartered in Atlanta, GA, this company designs, builds and sells single-family homes. The Zacks Consensus Estimate for its current-year earnings has climbed 8.5% over the past 30 days.
Zacks Rank #1
VGM Score B
Price Performance Over Past 6 Months: Up 163.5%
Expected EPS Growth Rate for 2020: 20.5%
TRI Pointe Group Inc. TPH: This Irvine, CA-based homebuilder designs, constructs and sells single-family detached and attached homes in the United States. The Zacks Consensus Estimate for its current-year earnings has moved up 29.4% over the past 60 days.
Zacks Rank #1
VGM Score A
Price Performance Over Past 6 Months: Up 137.7%
Expected EPS Growth Rate for 2020: 4.8%
M.D.C. Holdings, Inc. MDC: Based in Denver, CO, this company engages in the homebuilding and financial service businesses in the United States. The Zacks Consensus Estimate for its current-year earnings has climbed 1.7% over the past 30 days.
Zacks Rank #2
VGM Score A
Price Performance Over Past 6 Months: Up 135%
Expected EPS Growth Rate for 2020: 28.2%
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