U.S. Home Price Gains Gather Pace in September: 5 Top Picks

U.S. home price gains accelerate in September after a long period of decelerating price increases. According to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, U.S. home prices rose 3.2% year over year in September, following a gain of 3.1% in August on a national level.

The 20-City Composite Home Price Index rose 2.1% year over year, after 2.0% gain in August. However, the 10-City Composite Home Price index remained flat with the 1.5% rate of August. Low supply of homes for sale associated with strong housing demand resulted in accelerated price increases.

Momentum Likely to Continue

The strong pricing momentum in the housing sector is likely to continue in the near future. The U.S. housing sector rebounded in October buoyed by a low mortgage rate and a fundamentally stable domestic economy, which is growing for the historically longest 11 years, albeit with some loss in pace.

The housing starts marked the second-highest gain in October while building permits achieved the highest level in more than 12 years. Moreover, new home sales in October came in at 733,000, slightly below the revised estimates of 738,000 in September (original reading was 701,000). However, the figure surpassed the consensus estimate of 706,000.  

Turnaround in the housing sector is important since it generates more than 3% of the U.S. GDP. The Fed has reduced the benchmark interest rate by 75 basis points, which has helped the mortgage rate remain low. According to mortgage finance agency Freddie Mae, the 30-year fixed mortgage rate is currently hovering around 4%, well below 4.94% in November 2018.

Our Top Picks

At this stage, it will be prudent to invest in homebuilding stocks with a favorable Zacks Rank. We narrowed down our search to five such stocks.  Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

M/I Homes Inc. MHO operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas. It operates through the Midwest Homebuilding, Southern Homebuilding, Mid-Atlantic Homebuilding, and Financial Services segments.

The Zacks Rank #1 company has an expected earnings growth rate of 31.9% for the current year. The Zacks Consensus Estimate for the current year has moved up 14.6% over the last 60 days.

Meritage Homes Corp. MTH designs and builds single-family homes in the United States. The company operates through two segments, Homebuilding and Financial Services. It acquires and develops land, and constructs, markets, and sells homes for first-time and first move-up buyers.

The Zacks Rank #1 company has an expected earnings growth rate of 1.8% for the current year. The Zacks Consensus Estimate for the current year has moved up 4.4% over the last 60 days.

PulteGroup Inc. PHM is engaged in homebuilding and financial services businesses, primarily in the United States. It conducts operations through two primary business segments – Homebuilding and Financial Services.

The Zacks Rank #1 company has a negative expected earnings growth rate for the current year. However, its expected earnings growth for the next year is 10.2%. The Zacks Consensus Estimate for the current and next year has moved 3.5% and 4.8% north over the last 60 days.

D.R. Horton Inc. DHI operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West regions in the United States. It constructs and sells single-family detached homes, and attached homes, such as town homes, duplexes and triplexes.

The Zacks Rank #2 company has an expected earnings growth rate of 13.8% for the current year. The Zacks Consensus Estimate for the current year has moved up 6.3% over the last 60 days.

NVR Inc. NVR operates as a homebuilder in the United States. It primarily constructs and sells single-family detached homes, townhomes and condominium buildings under the Ryan Homes, NVHomes and Heartland Homes names.

The Zacks Rank #2 company has an expected earnings growth rate of 9.6% for the current year. The Zacks Consensus Estimate for the current year has moved up 2.1% over the last 60 days.

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