4 Stocks To Buy As Single-Family Housing Powers Growth

Data released last week showed that housing starts declined over the month of January while homebuilders’ confidence slipped this month. Though these reports may seem to be bad tidings at first glance, closer inspection reveals that the housing recovery remains on track. This is borne out by the substantial increase in the forward looking indicator, building permits.

Meanwhile, a bunch of reports released over February clearly show that single family housing has become the primary growth catalyst for the homebuilding sector. Such a trend is likely to continue later this year, what with mortgage rates still at appreciably low levels and demand outstripping supply. In such a situation, selecting homebuilding stocks with strong fundamentals makes for a wise investment option. 

Building Permits Surge, Homebuilder Confidence Remains High

In January, housing starts declined by 2.6% to a seasonally adjusted annual rate of 1,246,000. However, this reading was higher than the consensus estimate of 1,225,000. Additionally, it represents a 10.5% increase from Jan 2016’s reading of 1,128,000. More importantly, December’s figure was upwardly revised from the initial estimate of 1,226,000 to 1,279,000.

Moreover, building permits increased 4.6% to a seasonally adjusted annual rate of 1,285,000, significantly higher than the consensus estimate of 1,217,000. This was the highest level witnessed since Nov 2015. This substantial increase for the forward looking indicator implies that the sector is likely to experience better times in the months ahead.

The latest reading of the National Association of Home Builders (NAHB)/Wells Fargo builder sentiment index seems to confirm such a view. Despite the fact that the index declined by 2 points to touch 65 for the month of February, it remains well above the key level of 50. Any level above 50 indicates that builders’ views about sale conditions continue to remain optimistic. In fact, this is the 32nd consecutive month when a level of 50 has been observed.  

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