Zacks Investment Research | Dec 16, 2019 09:34PM ET
U.S. homebuilder sentiment was strong at the end of 2019. Per the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), confidence level among builders jumped five points to 76 in December from the revised November reading of 71. Notably, the December reading marked the highest level since June 1999.
“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” NAHB Chairman Greg Ugalde said in a statement.
All the three indices registered gains in December. A gauge of present sales conditions rose seven points to 84 from November. Traffic of prospective buyers also increased four points to 58 and sales predictions for the next six months edged up one point to 79.
The three-month moving averages for regional HMI reading were impressive in all regions other than Northeast. Midwest reported a five-point gain to 63, West increased three points to 84 and South rose one point to 76 from the prior-month figure. However, Northeast fell two points to 61 from a month ago.
Solid Economic Fundamentals Hold Key
The impressive readings are reflective of solid prospects in the U.S. homebuilding sector. Lower mortgage rates, Fed’s dovish stance, solid economic growth and favorable demographics are adding to the industry’s strength. Also, a 50-year low unemployment rate and increased wage growth make the picture rosier.
The U.S. economy grew at 2.1% in third-quarter 2019, exceeding the initial estimate of 1.9%. At the same time, consumer confidence levels remained high, thanks to almost a 50-year low unemployment level, scarce layoffs and steady rise in wages. These will certainly improve consumer outlays as well.
However, the housing market has its share of challenges. Supply-side constraints like labor and land availability continue to put pressure on builders’ margins. Also, higher development costs are hurting affordability and dampening its prospects to some extent.
Nonetheless, improved housing starts data in recent months should continue to favor the industry. Housing starts jumped 3.8% in October from September, which is a positive sign for the overall economy as developers anticipate higher demand. Also, low mortgage rates should continue to stimulate appetite among buyers, keeping sales volume positive in 2020.
5 Top Construction Picks
In view of the aforementioned positives, we have selected five homebuilding companies that investors may choose to bet on. We have chosen the stocks with the help of the Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.