TOP 4 Homebuilders “Built” for a Rising Housing Market

Sales of new single-family homes neared a 13-year high last month, with home sales rising 13.8% to a seasonally adjusted annual rate of 776,000 units. This was the highest level reached since July 2007.

The housing market has been outperforming the rest of the broader market against a…

backdrop of low-interest rates. The 30-year fixed mortgage rate has been hovering around 3%, close to a 49-year low. The news followed an announcement from the National Association of Home Builders/Wells Fargo Housing Market Index that Homebuilder sentiment went up by 14 points in July and a separate report of a rise in existing-home sales of 21% in June.

As the coronavirus has forced employees to work from home, there has been an emerging demand for homes away from the big cities. The SPDR S&P 500 Homebuilder ETF (XHB) is up more than 51% over the past three months. The pandemic has not affected home buyers as much as it has with renters. New homebuyers, which have a median age of 47, are less likely to have worked in the service industry jobs that were shut down due to the pandemic.

Four homebuilders that should continue to perform well in this environment are PulteGroup (PHM), D.R. Horton (DHI), Lennar (LEN), and Meritage Homes (MTH).

PulteGroup (PHM)

PHM is one of the largest homebuilders in the United States, operating in 44 markets across 24 states. The company mainly builds single-family homes and offers products to entry-level and active-adult buyers. The company also provides homebuyers with mortgage financing and title agency services through its financial services segment.

The company reported earnings on July 23rd and easily beat estimates with EPS of $1.15 compared with the consensus estimate of $0.84. PHM’s revenues of $2.59 billion was a 4.2% increase from a year ago. The company has benefitted from low-interest rates, a limited supply of existing homes, and pent up demand due to the pandemic. PHM’s focus on the growing market for new home buyers has served the company well, as affordability is currently an issue.

PHM currently has a Buy rating in our momentum-based POWR Ratings. Overall, it is the #6 ranked stock in the Homebuilders industry.

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