The National Housing Association of Home Builders or NAHB/Wells Fargo Housing Market Index or HMI scaled to 65 in September — the highest since Oct 2005. This reading mainly reflects builder perceptions of current single-family home sales and sales expectations for the next six months.
So are the builders shaking off global economic worries as well as volatile financial markets concerns? At least the latest reading hints at renewed strength in the sector.
NAHB Chairman Ed Brady has shown confidence in many markets across the nation as builders are seeing more buyers, given the rise in household income. Brady added, “The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017.”
Current sales expectations rose six points to 71 and the gauge charting sales expectations in the next six months grew five points to 71. Again, the index measuring traffic of prospective buyers reported a four-point gain to 48. This positive sentiment may be pointing toward the fact that the housing market has been cushioned against some of the dampeners such as a relatively strong dollar and economic discord in nations like China.
That said, concerns surrounding the availability of land and construction workers continue to raise concerns. Again, low interest rates and growing rents have made a home purchase more logical.
Interest Rate Hike Around the Corner?
Now, one factor that could be dampening investors’ sentiments is the possibility of an interest rate hike. On Sep 21, the Federal Reserve or Fed will hold a policy meeting where officials take a decision on whether to elevate short-term interest rates. It is to be noted in this regard that a rate hike could make mortgages more expensive.
However, as per a Reuters poll of economists, the Fed will likely leave its benchmark overnight interest rate unchanged following its two-day meeting on Sep 21. The Fed has not raised rates this year even after signaling at four rate hikes in 2016, last December. That number has since been scaled down to two this year, with another three hikes scheduled for 2017, owing to a global slowdown, financial market volatility and tepid U.S. inflation.
Overall, steady economic growth, along with increasing household formation, favorable demographics, low interest rates, and the attractiveness of owning versus rent is fueling demand.
In late Aug 2016, the Commerce Department reported new-home sales increase of 5.4% in July, after the sudden fall in June. The National Association of Realtors also reported a rise in sales of existing homes to their precession levels in July. Meanwhile, all eyes are glued on the existing-home sales figure for August that will be released on Sep 21, and new-home sales data on Sep 24.
Given the strong momentum in the housing space, it will be prudent to pick stocks with a solid Zacks Rank. A Zacks Rank indicating “Strong Buy” or “Buy” translates into an upward trend in the stock’s earnings estimates.
MDC Holdings Inc. MDC
MDC is a holding company with subsidiaries that provide home building and financial services. Through its home building brand, it has been building and designing new homes across the U.S. for over three decades. The holding company’s other subsidiaries provide financing services (such as mortgage lending and title insurance) for home buyers.
The stock sports a Zacks Rank #1 (Strong Buy) and has an attractive annual dividend yield of 2.03%. It has a solid 3-5 year expected EPS growth rate of 24.73% and has been witnessing solid growth and rising estimates.
TRI Pointe Group, Inc. TPH
The company is engaged in construction, design and sale of single-family homes. The stock sports a Zacks Rank #1 and has an average four-quarter earnings surprise of 34.57%.
The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.79, lower than the industry average of 12.5.
Universal Forest Products Inc. UFPI
Universal Forest manufactures, treats and distributes lumber products for the do-it-yourself, manufactured housing, wholesale lumber and industrial markets. The stock has a 3-5 year expected EPS growth rate of 10.00% and has rallied over 46% so far this year. The company has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup Inc. PHM
One of the nation’s largest and most diversified homebuilders, PulteGroup focuses on managing its homebuilding and financial services businesses. The holding company has brands which include Centex, Del Webb, DiVosta, Pulte Homes, and John Wieland Homes and Neighborhoods.
The stock has a dividend that yields 1.84% annually and a Zacks Rank #2 (Buy). It has a long-term expected EPS growth of 23.52% and is backed by its solid growth and northward movement in estimates.
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