Housing Data Reconfirms it’s Time to Buy These Homebuilder Stocks

Personal Finance

New residential construction data reconfirmed that it’s still time to buy stock in home builder companies.

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, previously-owned housing starts in May were at a seasonally adjusted annual rate of roughly 1.63 million. This came in 21.7% above the revised April estimate of 1.34 million and was up 5.7% year over year.

Previously-owned housing completions in May were 1.52 million and came in 9.5% higher than April estimates while also increasing 5% YoY. Notably, building permits beat April estimates by 5% but declined -12.7% from a year ago at 1.49 million.

Overall, housing data was strong in May and continues to make many stocks among the Zacks Building Products-Home Builders Industry attractive. To that point, this industry is currently in the top 6% of over 250 Zacks industries.

U.S. Census Bureau
Image Source: U.S. Census Bureau

Strong Performance

The top-rated Zacks Building Products-Home Builders Industry’s total collective return including dividends is now +42% year to date to easily top the S&P 500’s +16% and the Nasdaq’s +29%.  

Several stocks in the industry continue to covet a Zacks Rank #1 (Strong Buy) with standouts on the list including Lennar Corporation (LEN), MDC Holdings MDC, MI Homes (MHO), PulteGroup (PHM), and Toll Brothers (TOL).

The YTD total return of each of these home builder stocks has outperformed the broader indexes with MI Homes’ +75% and PulteGroup’s +67% leading the way.

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings Trend

Impressively, 88% of the stocks in the Zacks Building Products-Home Builders Industry were able to beat their most recent earnings expectations. Easing inflation and stabilizing interest rates have continued to strengthen business prospects in the space.

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings estimates are largely up for many stocks in the industry with MDC Holdings and PulteGroup’s revisions being the most compelling over the last 60 days.

MDC’s homebuilding operations include land acquisition and development along with home construction. Fiscal 2023 earnings estimates have now soared 39% over the last two months with FY24 EPS estimates climbing 36%.

Zacks Investment Research
Image Source: Zacks Investment Research

Looking at PulteGroup, the company offers a wide variety of home building designs including single-family detached, townhouses, condominiums, and duplexes. PulteGroup’s FY23 EPS estimates have risen 24% over the last 60 days with FY24 estimates jumping 26%

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

This week’s strong housing data continued to set a bullish undertone for stocks in the Zacks Building Products-Home Builders Industry. The trend of rising earnings estimates could continue and lead to even more upside in Zacks Rank #1 (Strong Buy) stocks like Lennar Corporation (LEN), MDC Holdings (MDC), MI Homes (MHO), PulteGroup (PHM), and Toll Brothers (TOL).

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report

Toll Brothers Inc. (TOL) : Free Stock Analysis Report

Lennar Corporation (LEN) : Free Stock Analysis Report

M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report

M/I Homes, Inc. (MHO) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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