Low Mortgage Rates Stimulate August New Home Sales: 4 Picks
Zacks Investment Research | Sep 25, 2019 09:58PM ET
The struggling housing market is steadily gaining footing, thanks to historically low mortgage rates. After upbeat builder sentiment along with soaring housing starts and existing home sales August data, the latest new home sales data for the month echoes the same sentiment.
On Sep 25, the Commerce Department stated that sales of newly constructed single-family homes for August, accounting approximately 11.5% of total U.S. home sales, grew 7.1% from July to a seasonally adjusted annual rate of 713,000 units — the second-highest level this year. Notably, August sales beat the consensus forecast of 659,000 by 8.2%. and grew 18% from the year-ago period.
Declining mortgage rates, moderating home prices, rising wages and the Federal Reserve’s dovish stance are reinforcing the U.S. housing market.
Post the release of upbeat data, the Invesco Dynamic Building & Construction ETF (PKB) and iShares U.S. Home Construction ETF (ITB) gained 1.2% each, while the SPDR S&P Homebuilders ETF (NYSE:XHB) increased 1%. Shares of notable homebuilders such as Hovnanian Enterprises, Inc. (NYSE:HOV) , Beazer Homes USA, Inc. (NYSE:BZH) , KB Homes (NYSE:KBH) and Toll Brothers, Inc. (NYSE:TOL) rallied 19.5%, 4.2%, 3% and 1.7%, respectively.
Recovery Stretches into August
Since the start of 2019, new-home sales data improved 6.4% despite being highly volatile. Median sales price for the month increased 7.5% to $328,400 from July and more than 2% a year ago.
Regionally, new houses sold were the highest in West with 16.5% increase in August. In the South, the metric advanced 6%. However, sales in the Midwest and Northeast tumbled 3% and 5.9%, respectively, from the July figure.
Again, the supply of new homes dropped 1.2% from the prior month to 326,000. Nonetheless, housing inventory increased 2.5% from a year ago. It would take just 5.5 months to deplete the current supply of homes, down from 5.9 months in July 2019 and 6.3 months in August 2018.
Homebuilders to Counter Challenges
The housing industry is highly sensitive to interest/mortgage rates fluctuations. Per the recent Freddie Mac Primary Mortgage Market Survey, 30-year fixed mortgage rate dropped 120 basis points over a year to an average rate of 3.73%.
The latest housing statistics — housing starts and building permits — rose an impressive 12.3% and 7.7% in August from July, respectively, the highest level since mid-2007. Moreover, existing home sales jumped to a 17-month high in the same month.
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Although the housing space is caught in the year-long trade tussle between the United States and China and is facing shortage of land and skilled labor, August’s data has been quite a breather. Additionally, the Federal Reserve’s interest rate cut last week for the second time this year to mitigate an economic slowdown is fueling a trend of mortgage refinancing and thereby lending support to household spending.
4 Top Housing Picks
Rebounding home sales data clearly shows that an increasing number of buyers are expressing interest in purchasing homes. Also, solid builders’ sentiments index and upbeat housing starts make the outlook for the industry bullish.
Therefore, picking the right stocks from the Zacks Zacks Investment Research
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