U.S. New Home Sales Surge in November: Housing Stocks in Focus

Last week, the Census Bureau and the Department of Housing and Urban Development jointly announced that sales of new residential houses jumped significantly in November 2017. According to the data, 733,000 new single-family houses were sold in November, 17.5% above the revised rate of 624,000 in October and 26.6% above the year-ago estimate of 579,000.

Sales were specifically strong in the West and South which recorded increases of 31.1% and 14.9%, respectively, while the Northeast and Midwest witnessed increases of 9.5% and 6.9%, respectively.

The data comes on the heels of a report issued by the National Association of Realtors (“NAR”) which showed that existing home sales jumped for the third straight month in November. According to the NAR, November existing-home sales represented the strongest pace since December 2006 with sales growing to 5.81 million, up 5.6% from October.  

Although challenges persist for the sector in the form of low supply levels/limited listings, an expected rise in mortgage rates in 2018 as well as rising prices, factors like strong consumer confidence, favorable demographics, pent-up demand, job gains and income growth should continue boosting home sales. Moreover, the sales shortfall resulting from the hurricanes should be recovered in 2018.

Stocks in Focus

The Home Builders segment enjoys a good Zacks Industry Rank (top 45% out of 256 industries). The industry has outperformed the broader market year to date as well. Here is a look at three housing stocks that look well positioned for 2018.

NVR, Inc. NVR: NVR is one of the nation's largest homebuilding and mortgage banking companies. The company sells and constructs homes under three brand names: Ryan Homes, NVHomes and Heartland Homes. The company’s homebuilding business covers twenty-nine metropolitan areas across fourteen states and Washington, DC.

NVR, a Zacks Rank #2 (Buy) stock has a pretty good earnings track record with the company surpassing expectations in each of the last four quarters with an average surprise of 17.2%. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.8% upward over the last 30 days. Estimated earnings growth for the current year is 42.5%. NVR stock has gained 108% year to date, significantly outperforming the 66.5% rally of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TRI Pointe Group, Inc. TPH: TRI Pointe is among the top ten largest public homebuilders by equity market capitalization in the United States. Single-family homes are designed, constructed and sold through the company’s portfolio of six brands across eight states, including Maracay Homes in Arizona; Pardee Homes in California and Nevada; Quadrant Homes in Washington; Trendmaker Homes in Texas; TRI Pointe Homes in California and Colorado; and Winchester Homes in Maryland and Virginia.  

California continues to be a strong market for the company with favorable market dynamics from the entry level, move up, lottery and active adult product segments thanks to strong job growth and persistent supply constraints in the Northern and Southern parts of the state.

Year to date, the Zacks Rank #2 stock’s shares are up 55.7%. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.7% upward over the last 30 days. Estimated earnings growth for the current year is 13.1%.

KB Home KBH: KB Home is one of the largest and most recognized homebuilding companies in the United States. The company sells and builds new homes primarily to first-time, move-up and active adult homebuyers with the focus being on first-time buyers, which represents the largest demand segment. Key markets include California on the West Coast, Arizona and Nevada in the Southwest, Colorado and Texas in the Central region and Florida and North Carolina in the Southeast.

The company has a strong earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 12.7%. A strong backlog and pent-up demand bode well for KB Home. Higher deliveries combined with an increasing average selling price are driving the company’s top-line growth. Meanwhile, increasing activity in the more affordable submarkets of the cities served by the company, especially from first-time and first move-up buyers, provides significant opportunity for KB Home. The company is also working on strengthening its Texas business with the restart of the Dallas operations, which is expected to be a meaningful contributor to results from the second half of 2018.

Estimated earnings growth for the current year is 57.7%. Shares of KB Home, a Zacks Rank #3 (Hold) stock, are up 100.4% year to date, significantly outperforming the industry's 66.5% rally.

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