5 Top Homebuilder Stocks With Room For More Growth

The homebuilding industry has been on a tear lately after being stalled by the coronavirus pandemic. The twin tailwinds of tumbling mortgage rates and higher demand for new homes have been driving the stocks higher in the industry. In fact, the S&P 500’s home-building sub industry index hit its first record in 15 years on Aug 10 and more than doubled from the lows reached in late March.

Mortgage rates have been on a declining trend. According to Freddie Mac, the 30-year fixed mortgage rate averaged 2.88% for the week ending Aug 6, down from 2.99% the week before and 3.6% a year ago. This level is the lowest in its survey’s history dating back to 1971. Record-low mortgage rates are encouraging people to buy more homes and have made refinance cheaper. This trend is likely to continue at least this year on the Fed’s easy money policy and provide a boost to the homebuilder stocks.

Homebuilder confidence has also been rising. The National Association of Home Builders/Wells Fargo Housing Market Index jumped back to the pre-pandemic high in July. Additionally, new homes sales in June hit the highest level since July 2007 while existing home sales jumped the most on record. Mortgage applications to purchase a new home were up more than 50% annually in June.

A slew of stronger-than-expected earnings added to the strength lately. Moreover, homebuilders are currently well-placed, belonging to a top-ranked Zacks industry (placed at the top 8% of 250+ industries), suggesting a solid outlook. However, labor shortage, rising construction costs and high unemployment could remain as causes of concern.

Given the bullish trend, we have presented five stocks that have easily led the way higher over the past three months. These stocks carry a Zacks Rank #1 (Strong Buy), suggesting their continued outperformance. Further, these stocks have a favorable Growth Score of B or better and positive estimated double-digit earnings growth for this year. 

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