Low Mortgage Rates Propel New Home Sales: 5 Top Picks

Despite falling in October, new home sales still remain strong this year. With the Fed’s three consecutive interest rate cuts this year, mortgage rates decreased, boosting the housing market.

Sales Fall in October, Yet at 12-year High

New home sales fell 0.7% in October to a 733,000-unit pace but came in above the consensus estimate of 706,000. On Nov 26, the Commerce Department also reported that sales of new homes in September were revised 4.5% upward to 738,000 units.

In fact, this upward revision in September hit a 12-year high since the July 2007 record of 778,000, and definitely points at the healthy growth of the housing market.

Coming to October, the pullback resulted from a decline in sales in the Northeast and South regions. Sales in the Northeast declined by 18.2% to a rate of 27,000 and sales in the South plunged to a rate of 436,000 by 3.3%.

However, there was unexpected growth in sales in the West and Midwest regions. Sales of new homes soared 7.1% to a rate of 195,000 units in the West and sales in the Midwest gained 4.2% to 75,000.

Per the government report, the median sales price of new houses sold in October was $316,700, which is 2.1% higher than the September’s price of $310,200. Additionally, the estimate of new homes ready for sale at the end of October was 322,000, which represents 5.3 months of supply at the current rate of sales.

Further, out of the total houses sold in October, nearly two-thirds were either under construction or yet to be built.

Low Mortgage Rate to Push Sales

So far this year, the housing market has received a push from lower mortgage rates, thanks to the Federal Reserve’s consecutive three rate cuts. The U.S. central banks’ last rate cut in October lowered the lending rate to a target range between 1.50% and 1.75%. According to data from mortgage finance agency Freddie Mac, the 30-year fixed mortgage rate is currently at 3.7%, which is below the November 2018 peak of 4.9%. This cheap borrowing cost has propelled the demand for new homes.

However, other economic data from the Commerce Department on Nov 19 also pointed at steady growth in the housing market. U.S. housing starts jumped 3.8% in October to a seasonally adjusted annual rate of 1,314,000 and building permits, a measure for future home building, rose to 1,461,000 in October.

5 Top Picks

Given the positive developments across the housing industry and the low mortgage rates, we can assume that the industry will grow more in the upcoming months. Here are five picks from the home building space and the home furnishing industry as they are poised to grow along with the housing sector in the long run. What’s more, these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

M/I Homes, Inc. (NYSE:MHO) is a publicly traded company that operates as a builder of single-family homes across the United States. The company’s expected earnings growth rate for the current year is 31.9% against the industry’s estimated earnings decline of 1.3%. The Zacks Consensus Estimate for its current-year earnings has moved up 14.6% over the past 60 days.

M/I Homes has outperformed the Building Products - Home Builders industry in the past one-year period (+90.9% versus +42.7%).

Meritage Homes Corporation (NYSE:MTH) is a publicly traded company that designs and builds single-family homes in the United States. The company’s expected earnings growth rate for the next quarter is 67.7% against the industry’s estimated earnings growth of 1.6%. The Zacks Consensus Estimate for its current-year earnings has moved up 4.4% over the past 60 days.

Meritage Homes has outperformed the Building Products - Home Buildersindustry in the past one-year period (+78.3% versus +42.6%).

PulteGroup, Inc. (NYSE:PHM) is a publicly traded company that acquires and develops land primarily for residential purposes and constructs houses on such land. The company’s expected earnings growth rate for the next quarter is 8.5% against the industry’s estimated earnings growth of 3.5%. The Zacks Consensus Estimate for its current-year earnings has moved up 4.6% over the past 60 days.

PulteGroup has outperformed the Building Products - Home Buildersindustry in the past one-year period (+51.9% versus +42.7%).

Forestar Group Inc. (NYSE:FOR) is a publicly traded company that engages in the acquisition, entitlement and development of infrastructure for single-family residential communities. The company’s expected earnings growth rate for the current year is 15.2% against the industry’s estimated earnings decline of 2.9%. The Zacks Consensus Estimate for its current-year earnings has moved up 4.6% over the past 60 days.

Forestar Group has outperformed the Real Estate - Development industry in the past one-year period (+30.2% versus +4.2%).

RH (NYSE:RH) is a publicly traded company that operates as a retailer in home furnishings, offering furniture, lighting, textiles, bath ware, décor, outdoor and garden, tableware, and child and teen furnishing. The company’s expected earnings growth rate for the current year is 26.9% compared with the industry’s estimated earnings growth of 3.6%. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days.

RH has outperformed the Retail - Home Furnishings industry in the past one-year period (+87.1% versus +19.3%).

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