An uptick in raw materials coupled with higher mortgage rates has impacted housing activity for quite some time. However, for the first time in almost a year, homebuilders’ sentiment about the housing market has turned bullish, thanks to strong housing demand.
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The National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI) jumped five points to 55 in June, indicating that builders are feeling good about the newly built single-family housing market. The NAHB Index moved above the midpoint of 50 for the first time in 11 months, while sentiment among builders improved for the sixth successive month.
The NAHB Index’s, June reading of 55, in reality, was the strongest since July 2022 as steady improvements in supply chains and low levels of inventory boost builders’ confidence. Further, the NAHB index’s readings on current and future sales conditions in the housing market also improved. Home builders, at present, have begun to curtail sales incentives, a tell-tale sign that demand for single-family homes is increasing.
And with the Federal Reserve almost nearing the end of its tightening cycle, the future of the housing market certainly looks brighter. This is because a pause in interest rate hikes will make it easier to purchase physical properties, which won’t be expensive.
Meanwhile, housing starts have picked up pace in the country despite economic headwinds, added the U.S. Census Bureau. Housing starts soared by 21.7% in May, to a seasonally adjusted annual rate (SAAR) of 1.63 million units, with both multifamily and single-family starts ticking up.
Construction of single-family homes picked up pace mostly in the Midwest region, as the weather warmed up. Building permits for single-family homes also increased 5.2% last month. Thus, with homebuilder sentiment improving, and builders ramping up the construction of single-family homes, housing stocks like PulteGroup PHM, Lennar LEN, and Toll Brothers TOL are well-poised to benefit in the near term.
These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup is primarily involved in homebuilding activities in the United States. PHM aims to increase its investment in land acquisition and development initiatives mostly due to strong buyer demand, and an uptick in construction activities.
PHM, currently, has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up almost 23.9% over the past 60 days. PHM’s expected earnings growth rate for the next five-year period is 16%. Its shares have already gained 33.4% in the past five-year period.
Lennar mostly engages in homebuilding services in the United States and is currently benefiting from higher operating leverage and effective cost-control measures.
LEN, presently, has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up almost 2% over the past 60 days. LEN’s expected earnings growth rate for the next five-year period is 6%. Its shares have already gained 29.6% in the past five-year period.
Toll Brothers primarily build single-family homes in the United States. Toll Brothers’ dominance in the luxury housing market and focus on the build-to-order model is expected to drive growth.
TOL, currently, sports a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up almost 22.5% over the past 60 days. TOL’s expected earnings growth rate for the next five-year period is 11%. Its shares have already gained 23.9% in the past five-year period.
Shares of PulteGroup, Lennar and Toll Brothers, by the way, have gained 64.5%, 34.3% and 50.9%, respectively, so far this year.
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