Sales of newly built homes jumped a whopping 55% in May according to a monthly survey by John Burns Real Estate Consulting. This is the highest gain since homebuilding bounced back after an epic crash a decade ago. Also, this indicates that buyers have started rushing to buy new homes as states gradually lift restrictions.
The new data comes just days after the United States witnessed an uptick in homebuilder sentiment in May. This means 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 Rise in June
Although the official government count will be out only at the end of the month, John Burns Real Estate Consulting has historically mirrored the U.S. Census report, thus indicating that buyers have once again started flocking the homebuilding market.
The 55% jump is also the highest pace of sales growth since the height of the unprecedented housing boom in 2005. Sales of new homes were strongest in the Northeast, with an 86% annual jump, and in Florida, where sales popped 84%, according to JBRC. California saw gains, but was a laggard.
Understandably, the boom was driven by the coronavirus pandemic, which saw people locked in their homes for almost 10 weeks, thus halting the sale of new homes almost completely. However, with states now reopening, it is likely that buyers who had postponed their plans will once again go searching for new homes.
Other Factors Helping Demand
A lot of factors are helping new home sales as states continue to relax stay-at-home restrictions. Homebuilder sentiment bounced back in May. The National Association of Home Builders/Wells Fargo Housing Market Index climbed seven points to 37 this month after a record plunge 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 improved in May, indicating that life is somewhat going back to normal.
Moreover, home-buying activity is getting another boost from record-low mortgage rates. The Federal Reserve has pumped cash into the economy to lower rates as part of its efforts to stimulate economic activity in the face of the novel coronavirus outbreak.
Our Choices
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 four stocks with a Zacks Rank #1 (Strong Buy) that are likely to gain ahead. 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 13.8%. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 60 days.
Century Communities, Inc. CCS is a home building and construction company. Its activities comprise land acquisition, development and entitlements; and the acquisition, development, construction, marketing and sale of various single-family detached and attached residential home projects.
The company’s expected earnings growth rate for next year is 11%. The Zacks Consensus Estimate for current-year earnings has improved 22.8% 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.
The company’s expected earnings growth rate for next year is 21%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% 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.
