The Zacks Analyst Blog Century Communities, M/I Homes, Meritage Homes, PulteGroup and Taylor Morrison Home
For Immediate Releases
Chicago, IL – September 20 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Century Communities, Inc. CCS, M/I Homes, Inc. MHO, Meritage Homes Corp. MTH, PulteGroup, Inc. PHM and Taylor Morrison Home Corp. TMHC.
Here are highlights from Friday’s Analyst Blog:
5 Housing Stocks to Buy After Rebound in Starts/Permits and Rate Cut
The Fed rate cut, along with the increase in building permits and single-family housing starts, brings a glimmer of hope for the U.S. housing sector that had been weighed down by economic uncertainty.
Companies such as Century Communities, Inc., M/I Homes, Inc., Meritage Homes Corp., PulteGroup, Inc. and Taylor Morrison Home Corp. are well-positioned to capitalize on this industry upturn, supported by their strong fundamentals.
August Housing Starts and Building Permits See Gains
According to Commerce Department data released Wednesday, housing starts for privately-owned units grew 9.6% to an annual rate of 1.356 million in August after dipping 3.9% to a revised rate of 1.237 million in July. The August figure beat the consensus mark of 1.318 million units by 2.9%. Also, the August figure gained 3.9% on a year-over-year basis. Single-family starts — accounting for the lion’s share of the housing market — also soared 15.8% in August to 992,000 units from July.
Starts for housing projects with five units or more tumbled 6.7% to a rate of 333,000 units in August from July and were down 6.2% year over year.
Adding to the tailwinds, August’s residential building permits — an indicator of construction activity — gained 4.9% from July but down 6.5% year over year to an annualized rate of 1.475 million units. The August permit level also came above the analysts’ prediction of 1.410 million units by 4.6%. Also, permits for single-family homes were up 2.8% last month from July but down 0.5% year over year. Multi-family building permits shot up 8.4% to a rate of 451,000 units in August from July but were down 16.8% from the year ago.
The Fed’s Rate Cut Offers Relief
On Wednesday, the Federal Reserve agreed to cut its benchmark interest rate by half a percentage point to a range of 4.75% to 5%. This move, long anticipated by the market, has the potential to bring some much-needed relief to the housing market — which accounts for about 3.1% of GDP. High mortgage rates have deterred many would-be homebuyers over the past two years, especially as rates hovered around or above 7%.
Mortgage Rates & Applications: A Healthier Story
The drop in mortgage rates has already triggered a sharp increase in mortgage applications. In the recent Primary Mortgage Market Survey report published by Freddie Mac, the 30-year, average fixed-rate mortgage was down to 6.2% for the week ending Sept. 12, 2024, which is the lowest rate since February 2023. This is a 1.6 percentage point drop from the 23-year high of nearly 8% that was reached in the fall of 2023.
The drop in mortgage rates has already triggered a sharp increase in mortgage applications. Mortgage applications increased 14.2% from one week earlier, according to data from the Mortgage Bankers Association’s (“MBA”) Weekly Applications Survey for the week ending Sept. 13, 2024. Last week’s results included an adjustment for the Labor Day holiday. On an unadjusted basis, however, the index soared 26% compared to the previous week.
As highlighted by Joel Kan, MBA’s vice president and deputy chief economist, “Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower. The 30-year fixed mortgage rate, at 6.15%, is now at its lowest since September 2022 and is more than a full percentage point lower than a year ago.” Kan added, “Refinance applications were up 24% – more than double last year’s pace, with both conventional and government activity jumping to the fastest pace of refinancing since 2022.”
Building Momentum, But Challenges Remain
Despite a July slowdown caused by Hurricane Beryl, housing starts saw a strong recovery in August. Future growth in housing starts is anticipated, driven by the persistent need for housing supply, declining mortgage rates, and improved credit conditions for builders.
However, some experts believe that the Federal Reserve's anticipated rate cut has already been factored into mortgage prices, meaning the increase in market activity may be limited. A few market pundits also suggest that while housing conditions seem favorable, more interest rate cuts are needed to motivate buyers.
Investors should keep in mind that, despite the relief from recent rate cuts, housing remains significantly more expensive than it was before the COVID-19 pandemic disrupted the market. Between 2009 and 2021, the 30-year fixed mortgage rate never exceeded 6%, and it stayed below 4% from May 2019 until March 2022.
Although challenges, high construction costs, and labor shortages persist, sentiment among U.S. homebuilders for newly-built single-family homes got a boost in September, buoyed by decreasing mortgage rates. U.S. homebuilder confidence edged up by 2 points in September to 41 from 39 in August, breaking four months of consecutive declines. Yet, it remained at relatively low levels as rising costs continued to hinder construction (read more: Builder Confidence Bounce Back in September: 5 Housing Stocks to Watch).
Stocks to Bet On
The recent Fed rate cut and improving housing indicators are bringing cautious optimism to the U.S. housing market. While challenges like high construction costs and labor shortages remain, the rebound in housing starts, building permits, and mortgage applications suggests that the market could be poised for recovery.
For investors, the recent housing market developments present a unique opportunity. The Zacks Building Products - Home Builders industry currently ranks among the top 17% of all Zacks industries, making it a prime area for potential gains.
Yet, picking winning stocks is no mean feat at the moment. With the help of the Zacks Stock Screener, we have zeroed in on five stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and favorable metrics.
Century Communities— a Greenwood Village, CO-based homebuilder — currently flaunts a Zacks Rank #1. Shares of the company have soared 30.1% over the past three months.
CCS’ earnings per share (EPS) estimates for 2024 have increased to $10.72 from $10.64 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 35.6%. CCS’ earnings are expected to rise 32.5% year over year in 2024.
M/I Homes— a Columbus, OH-based homebuilder that engages in the construction and sale of single-family residential homes — currently flaunts a Zacks Rank #1. Shares of the company have surged 40.3% over the past three months.
MHO’s EPS estimates for 2024 have increased to $19.76 from $19.58 over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 4.8%. MHO’s earnings are expected to rise 21.9% year over year in 2024. Again, it carries an impressive VGM Score of B.
Meritage Homes— a Scottsdale, AZ-based company that designs and builds single-family attached and detached homes — currently carries a Zacks Rank #2. Shares of the company have gained 24.4% over the past three months.
MTH’s EPS estimates for 2024 have increased to $21.09 from $20.33 over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 21.5%. MTH’s earnings are expected to rise 5.8% year over year in 2024.
PulteGroup — an Atlanta, GA-based homebuilder, currently holds a Zacks Rank #2. Shares of the company have gained 27.4% over the past three months.
PHM’s EPS estimates for 2024 have increased to $13.36 from $12.85 over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 10%. PHM’s earnings are expected to rise 14% year over year in 2024. Again, it carries an impressive VGM Score of B.
Taylor Morrison Home— Scottsdale, AZ-based public homebuilder currently carries a Zacks Rank #2. Shares of the company have gained 28.4% over the past three months.
TMHC’s EPS estimates for 2024 have increased to $8.04 from $7.88 over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 9.4%. TMHC’s earnings are expected to rise 6.2% year over year in 2024.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Meritage Homes Corporation (MTH) : Free Stock Analysis Report
Century Communities, Inc. (CCS) : Free Stock Analysis Report
Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report