May New Home Sales Strong: 5 Key Housing Picks

Sales of new single-family homes in the United States showed a strong uptick in May, triggering hopes that the COVID-19-induced housing slowdown might be coming to an end.

Sales of newly constructed single-family homes, accounting for roughly 10% of all U.S. home sales, jumped 16.6% in May from the prior month to a seasonally adjusted annual rate of 676,000 units, per data released on Jun 23 by the Commerce Department. The May figure also increased 12.7% from a year ago and beat the consensus forecast by 7.3%. Notably, April’s sales pace was revised down to 580,000 units from the previously-reported 623,000 units.

Delving Deeper

Three out of four U.S. regions posted sequential gains in May, driven by a 45.5% increase in the Northeast. This was followed by gains of 29% in the West and 15.2% in the South. The Midwest region, however, dropped 6.4%. The inventory of new homes for sale at the end of May was 318,000, representing a 5.6-month supply.

Meanwhile, the median price for a new home sold last month was $317,900, down 1.7% from a year ago.

Explaining the Difference Between New & Existing Home Sales

New home sales numbers came just a day after the National Association of Realtors reported a 9.7% drop in May existing homes sales to an annual rate of 3.91 million, the slowest in nearly a decade. This also marked the third straight monthly decline.

Although existing home sales for May declined, new home sales were encouraging. The rationale behind the difference in these reports is that new home sales are calculated at the signing of a contract, making it a leading housing market indicator. Meanwhile, existing home sales reflect the closing of sales, which typically occurs one to two months after signing.

Hence, this latest new home sales report reflects what happened in May post the pandemic-induced shutdowns. It clearly depicts a rapid improvement in the housing market that is evident from the recent spike in builder confidence. Per the latest Housing Market Index (HMI), sentiment among U.S. homebuilders jumped a striking 21 points to 58 this month from May (read more: Builder Sentiment Posts Biggest Monthly Rise: Stocks in Focus). Buyers are now more eager to take advantage of lower mortgage rates and reduced coronavirus-induced restrictions.

Change in Buyers’ Preference

Meanwhile, this rapid improvement in sales of new homes reflects a change in consumer preference. According to a new study from Realtor.com, Americans are now more interested in suburban and rural areas as the housing market recovers from pandemic-induced shutdowns. Views of online home listings in May 2020 on Realtor.com grew 13% year over year for suburban ZIP codes. This is roughly double the rate of searches for urban localities, per the report. Overall, suburban listing views in May 2020 exceeded the number from a year ago. Meanwhile, listing views for homes in rural areas rose 16% year over year.

Hence, with rapid evolving preferences in buying pattern, builders who can keep up with those preferences could witness higher sales growth.

Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions as well as the ongoing broad-based economic and public health risks associated with the pandemic. In fact, buyers are disregarding these impediments and the housing market seems to be well poised entering into the early weeks of summer. The better-than-expected jobs report as well as other recent economic data has shown a strong revival from pandemic-lows, pointing to a V-shaped recovery.

Key Housing Picks

Given the anticipated V-shaped recovery in housing demand after the easing of lockdowns, investors might consider adding these homebuilding stocks to their portfolio.

TRI Pointe Group Inc. TPH: This Irvine, CA-based homebuilder designs, constructs and sells single-family detached and attached homes in the United States. The company currently sports a Zacks Rank #1 (Strong Buy) and its earnings estimates for 2020 have moved 3.5% north over the past 30 days. The stock has climbed 46.7% over the past three months compared with the industry’s 44.7% growth. You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA, Inc. BZH: This leading national homebuilder currently holds a Zacks Rank #2 (Buy). Earnings estimates for fiscal 2020 have moved 7.7% upward in the past 60 days. The company’s shares have appreciated 58.7% in the past three months.

Lennar Corporation LEN: This Miami, FL-based leading homebuilder carries a Zacks Rank #2. Earnings estimates for fiscal 2020 have moved 16.3% up in the past 30 days. The company’s shares have rallied 50.3% in the past three months.

Meritage Homes Corporation MTH: This leading designer and builder of single-family homes currently carries a Zacks Rank #2. Earnings estimates for 2020 have moved up 2.2% in the past 30 days. Over the past three months, the company’s shares have gained 81.5%.

NVR, Inc. NVR: Headquartered in Reston, VA, this homebuilder currently carries a Zacks Rank #2. Earnings estimates for 2020 have climbed 9.3% in the past 30 days. Over the past three months, the company’s shares have gained 12.2%.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
NVR, Inc. (NVR) : Free Stock Analysis Report
 
TRI Pointe Group, Inc. (TPH) : Free Stock Analysis Report
 
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
Meritage Homes Corporation (MTH) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research