Home sales generally slow down in summer but this year seems to be an exception, thanks to the pandemic that is making buyers flock to markets after for almost two months of lockdowns. Pending home sales, which measure signed contracts to purchase existing homes, increased almost 6% in July from June, according to the National Association of Realtors (NAR).
Needless to say, the housing market in the United States is once again booming, with both homebuilders and buyers showing confidence in the economy. This also signals that the worst of the economic downturn is probably over. Also, home-buying activity is getting a further boost from record-low mortgage rates.
Pending Home Sales Jump Annually
According to NAR, pending home sales jumped 5.9% to 122.1 in July from June. Sales were 15.5% higher year over year. Regionally, pending home sales in the Northeast rose 25.2% in July and 20.6% from a year ago. In the Midwest, sales rose 3.3% monthly and 15.4% year over year.
Mortgage rates were at record lows in July, giving buyers additional purchasing power. Home prices, however, continue to rise on stiff competition in the market. The median home price in July hit a record $304,100, as measured by closed sales.
Homebuilding Market Soaring
This is the third consecutive month that pending home sales have jumped. That said, it’s the overall homebuilding market that is putting up a great show. 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, according to the Commerce Department. The increase follows a 19.4% jump in May.
Moreover, homebuilder confidence in the newly built, single-family home market jumped 6 points to 78 in August on the National Association of Home Builders/Wells Fargo Housing Market Index. The index is now at the highest level in the 35-year history of the monthly series and matches the record it had set in December 1998. Anything above 50 is considered positive sentiment.
Understandably, homebuilders are benefiting from the severe shortage of existing homes for sale. There were already fewer homes to meet demand before the pandemic, and now fewer homeowners are willing to list their homes for sale.
Many other factors are also helping home sales as states continue to relax stay-at-home restrictions. 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 to improve in May, indicating that life is somewhat going back to normal.
The rise in pending and new home sales along with growth in homebuilding activity indicates buyers interest with gradual reopening of the economy. In this opportune time, we suggest investing in the following five stocks with a Zacks Rank #1 (Strong Buy) that are likely to gain ahead. You can see year over year.
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 32.8%. The Zacks Consensus Estimate for current-year earnings has improved 20% over the past 30 days.
MI Homes, Inc. MHO is one of the nation’s leading builders of single-family homes. MI Homes serves a broad segment of the housing market, including first-time, move-up, luxury and empty-nester buyers.
The company’s expected earnings growth rate for the current year is 36.7%. The Zacks Consensus Estimate for current-year earnings has improved 91.2% over the past 30 days.
PulteGroup, Inc. PHM engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments — Homebuilding and Financial Services.
The company’s expected earnings growth rate for the current year is 18%. The Zacks Consensus Estimate for current-year earnings has improved 34.4% 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 the historically high-growth regions of the United States.
The company’s expected earnings growth rate for the current year is 42.8%. The Zacks Consensus Estimate for current-year earnings has improved 47.2% 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 the current year is 26.2%. The Zacks Consensus Estimate for current-year earnings has improved 56.9% over the past 30 days.
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