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Home builders continue to drive the economy’s rebound rally in March. Benefits of suburban and rural living during the COVID-19 pandemic and low mortgage rates continue to drive growth in the housing space, especially in single-family homes.

March Housing Market Data Strong

 The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported on Apr 16 that housing starts jumped 19.4% to a seasonally adjusted annual rate of 1.739 million units in March. Last month’s jump is the highest since June 2006, showing a 37% year-over-year jump and surpassing the consensus estimate of 1.618 million units. Single-family housing starts jumped 15.3% in March at a rate of 1.238,000, much above the revised February figure of 1.074. The Northeast, Midwest, and South witnessed increased activity while numbers fell in the West.

According to the same report, building permits came in at 1.766 million in March, highlighting a 2.7% rise and above the consensus estimate of 1.750 million. Single-family authorizations last month were at a rate of 1.199 million and are 4.6% higher than February’s revised figure of 1.146 million. Additionally, housing completions accelerated 16.6% to a rate of 1.580 million units in March, which is the highest since March 2007. And single-family home completions shot up 5.3% to a rate of 1.099 million, another record high since November 2007.

Builders Confident Despite Rising Material Costs

The biggest problem currently faced by builders is sourcing the materials needed to build homes. The price of lumber remains extremely expensive compared to a year ago and the shortage of semiconductors has caused delays in the deliveries of new appliances, especially when buyers are increasingly looking for smart homes.

With strong housing data from March showing that the boom in the housing space is here to stay, the National Association of Home Builders’ (NAHB) survey showed that confidence among homebuilders increased to 83 in April amid strong buyer traffic. According to Robert Dietz, chief economist for the NAHB, the group is forecasting ongoing growth in single-family construction in 2021, even though at a lower growth rate than realized in 2020, and much of is due to the supply-side strain.

Mortgage Rates Still Low

Home prices have spiked due to supply-side problems and mortgage rates have also moved up since February as the economic rebound has pushed inflation higher. However, the migration to suburbs and lower populated areas has kept demand for homes, especially single-family homes, accelerating. After jumping to 3.18% in the first week of April, the 30-year fixed mortgage rate slipped down to 3.04% for the week ending Apr 15, according to Freddie Mac data. This is the lowest reading since early March this year.

5 Stock Picks

Given the current scenario, the housing market is doing well despite the constant supply-side headwinds. Hence, we have shortlisted five housing and related companies’ stocks that are poised to grow.

Louisiana-Pacific Corporation (LPX Quick Quote LPX - Free Report) manufactures and markets building products, primarily for use in new home construction, repair and remodeling, and outdoor structure markets. The company’s expected earnings growth rate for the current year is 68.7% compared with the Zacks Building Products - Wood industry’s projected earnings growth of 30.1%.

The Zacks Consensus Estimate for this company’s current-year earnings has been revised 58.7% upward over the past 60 days. Louisiana-Pacific flaunts a Zacks Rank #1 (Strong Buy). 

Forterra, Inc. (FRTA Quick Quote FRTA - Free Report) manufactures and sells pipe and precast products. The company’s expected earnings growth rate for the current year is 38.3% compared with the Zacks Building Products - Concrete and Aggregates industry’s projected earnings growth of 18.9%. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year earnings has been revised 27.5% upward over the past 60 days. 

KB Home (KBH Quick Quote KBH - Free Report) builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums. The company’s expected earnings growth rate for the current year is 81.5% compared with the Zacks Building Products - Home Builders industry’s projected earnings growth of 17.7%. The Zacks Consensus Estimate for this company’s current-year earnings has been revised 11.2% upward over the past 60 days. KB Home carries a Zacks Rank #2 (Buy).

Lennar Corporation (LEN Quick Quote LEN - Free Report) engages in homebuilding operations, which include the construction and sale of single-family attached and detached homes. The company that belongs to the Zacks Building Products - Home Builders industry has an expected earnings growth rate of 39.9% for the current year. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current-year earnings has been revised 23.9% upward over the past 60 days.

M.D.C. Holdings, Inc. (MDC Quick Quote MDC - Free Report) engages in homebuilding and financial service businesses. The company belongs to the Zacks Building Products - Home Builders industry and has an expected earnings growth rate of 34.6% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 15.6% upward over the past 90 days. M.D.C. Holdings carries a Zacks Rank #2.