Housing Stocks to Buy
We’re all abuzz about the return of the housing market, but that post shutdown market demand is still not what we expected. Instead of huge waves of home listings and desperate buyers, we’re seeing low levels of listings.
It seems the real demand is for new construction homes away from the big metros. Yes, new home sales have been brisk with home buyers buying homes unseen, or before they’re even built. This make home builder stocks an inviting investment.
New home construction was predicted to grow strongly in 2020, but that was before the pandemic. Will the full forecasted demand return as the work shutdowns end?
The NAHB’s homebuilder sentiment index jumped 14 points to 72 in July. That tells us homebuilders believe new home demand is solid and that they can make a profit in this new environment. NAHB rates sales expectations for the rest of 2020 are positive, up 7 points to 75, and buyer traffic expectations are positive too, up 15 points to 58.
Wedbush analyst Jay McCanless in a Barron’s report recently, that views the shares of Builders FirstSource (ticker: BLDR), D.R. Horton (DHI), Lennar Corp (LEN), Taylor Morrison Home (TMHC) and Toll Brothers (TOL) are undervalued.
The positive new home construction market outlook does support the strong rebound of the economy and the stock market as well. Despite the vicious growth of Covid 19 infections, it looks like the US economy is learning how to function in its wake. With a renewed emphasis on wearing masks and good hygiene, the outlook is improved.
However, the real threat this fall is a return of children to schools. This is what may launch the 2nd wave. That could make new construction home buyers even more insistent on bidding on new home, or having one built themselves.
There is a live chart of housing stocks below that include DR Horton, Toll Brothers, Lennar Group, PulteGroup, NVR, KB Home, Taylor Morrison, LGI Homes, MDC Holdings, and Century Communities and more. You can drill down into each company to discover which hold the most stock investment value.
Big Demand for New Construction Housing
Of course, the demand is for new construction single family dwellings (i.e., the south) and not for urban or suburban multifamily dwellings, which tells you a lot about what’s happening. Why do buyers want new construction? There are a number of reasons highlighted below.
This is unusual home buyer activity pointing to a certain desperation in the resale housing market. The forecast is for even more as resale housing stock remains low and buyers look to live in rural areas. If buyers want to live in the countryside or in the burbs, they will have to beat anti-housing regulation to build new homes. That means threats to supply and rising costs.
Check out the New York Housing Market, Boston real estate market, California Housing Market, Florida housing market, Tampa housing market, Dallas housing market, and Atlanta housing market forecasts and predictions.
NAHB New Construction Report
The National Association of Home Builder’s July report shows home building is hot, yet there is still need for more units.
Overall new home building permits rose slightly by 2.1% to 1.24 million units (annualized rate) in June. Single-family home building permits grew 11.8% to 834,000 units (annualized). And multifamily permits fell strongly 13.4% to a 407,000 annual rate.
Total housing starts increased 17.3% in June to a seasonally adjusted annual rate of 1.19 million units — HUD
According to the latest NAHB housing start report, single-family starts rose 17.2% in June to seasonally adjusted annual rate of 831,000 units. The multifamily sector jumped 17.5% in June to a new build pace of 355,000 new apartment buildings and condos.
With respect to the main US regions: combined single-family and multifamily starts rose 2.2% in the Midwest, up 0.2% in the South, 2.9% higher in the West and fell 5.4% in the Northeast. Of course the Northeast is plagued with high Corona Virus costs, shutdowns and very high taxes. The situation in the US northeast looks rather bleak with the wealthy and workers fleeing states such as New York, Massachusetts, Maryland for low tax states.
Year over year data shows home building permits higher in the South 3.4% , down 8.8% in the Northeast, fallen 2.3% in the Midwest and down 3.9% in the West.
People are moving South but they’re running into full dangers of the Corona Virus pandemic raging there.
NAHB Chairman Chuck Fowke says in a report that “Demand is growing in lower density markets, including exurbs and small metros.” This reflects the trend to move away from big cities in California and the Northeast to less dense rural communities and to the lower taxation states, Texas and Florida.
Housing stocks have been particularly hot since March as you can see in the chart below from XHB ETF on the S&P exchange courtesy of Yahoo Finance.
But what housing market factors are driving such demand and sales in the new home construction market?
Demand Factors for New Housing Construction
- record low interest rates
- significant savings growth amongst stay at home workers who could buy a home
- lack of resale housing stock (listings)
- lower housing regulations, fast tracking building permits
- developable land
- available building lots
- buyers fleeing high taxes states such as California, Illinois and New York
- higher labor and lumber costs
- demographics with young home buyers in peak housing formation years
- buyers fleeing Covid infections in high density urban zones
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