Sales of new single family homes in the United States hit a 13-year high in June as the housing market outperformed the broader economy amid low mortgage rate and migration from densely populated urban centers to less-populated areas on fears of coronavirus. This is the second straight jump in newly built homes after two months of sales decline due of the coronavirus.
The new data comes just days after the United States witnessed an uptick in homebuilder sentiment in July. This means that both homebuilders and buyers have started showing confidence in the economy once again, signaling that the worst of the economic downturn is probably over.
New Home Sales Hit Record High
Sales of new homes rose a sharp 13.8% in June to a seasonally adjusted annual rate of 776,000 units, the highest level since July 2007, the Commerce Department reported on Jul 24. The increase follows a 19.4% jump in May. Also, May’s sales pace was revised upward to 682,000 units from the previously reported 676,000 units.
The back-to-back sales gain in May and June follows two months of steep decline in sales in March and April as much of the country went into lockdown and massive job losses prevented people from risking their money in new homes. New home sales have now recouped losses suffered when non-essential businesses were shuttered in mid-March to contain the spread of coronavirus.
Other Factors Helping Demand
A lot of factors are pushing new home sales as states continue to relax stay-at-home restrictions. Homebuilder sentiment bounced back in July. The National Association of Home Builders/Wells Fargo Housing Market Index climbed 14 points to 72. That is exactly where it was in March, before the pandemic hit the country’s economy. Anything above 50 is considered positive sentiment. Homebuilder sentiment had plummeted to a record low of 30 in April.
Coronavirus resulted in record job losses in April, and a collapse in manufacturing output and retail sales. People backed out from buying homes as they feared blocking their money by investing in property. However U.S. consumer confidence and consumer spending started improving since May, indicating that life is somewhat going back to normal.
A separate report last week showed sales of previously owned homes also surged 20.7% in June to a seasonally adjusted annual rate of 4.72 million. Moreover, home-buying activity is getting another boost from record-low mortgage rates, which have dropped below 3% for a 30-year-fixed rate mortgage for the first time in nearly 50 years.
The rise in new home sales is an indication that buyers are showing interest with the U.S. economy gradually reopening up and people going back to work. In this opportune time to invest in homebuilding, we suggest five stocks with a Zacks Rank #1 (Strong Buy) that are well poised for gains. You can see the complete list of today’s Zacks #1 Rank stocks here.
D.R. Horton, Inc. DHI is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets.
The company’s expected earnings growth rate for the current year is 14.5%. The Zacks Consensus Estimate for current-year earnings has improved 6.7% over the past 60 days.
Meritage Homes Corporation MTH primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active adult buyers in historically high-growth regions of the United States.
The company’s expected earnings growth rate for the current year is 10.4%. The Zacks Consensus Estimate for current-year earnings has improved 42.4% over the past 60 days.
M.D.C. Holdings, Inc. MDC engages in homebuilding and financial service businesses in the United States. It is engaged in the construction, sale and related financing of residential housing, and the acquisition and development of land for use in the Denver, Phoenix, Maryland, Virginia, mid Atlantic region, Las Vegas, Dallas and California metropolitan areas.
The company’s expected earnings growth rate for next year is 14.4%. The Zacks Consensus Estimate for current-year earnings has improved 1% over the past 60 days.
TRI Pointe Group, Inc. TPH is involved in the design, construction and sale of single-family homes. The company’s operating portfolio includes Maracay Homes in Arizona; Pardee Homes in California and Nevada; Quadrant Homes in Washington; Trendmaker Homes in Texas; TRI Pointe Homes in California and Colorado; and Winchester Homes in Maryland and Virginia.