While the stock market has had an incredible run over the past eight years, another asset is starting to jump in price, and that’s the value of your home. That’s a far cry from the gloom and doom days of 2009, when the negative pundits were screaming that the American dream of owning a home was over. Between increasing prices and an outright need for more residential units, the top builders may be in for a boom.
U.S. residential housing starts have averaged 900,000 annually in the past decade, the lowest 10-year average since at least 1969. To bring this average to more normal levels requires the United States to build 8 million more homes in the next decade. Think of the demand at all price points, and what this could do for the homebuilders and the economy.
A new Wedbush research report points out that prices are rising and inventories are dropping. The report noted:
Typically, inventories will show a seasonal lift heading into the spring, but that has not been the case thus far in 2017. If this continues to be the case, we believe the tight inventories could be incrementally positive for homebuilder pricing power especially as inventories remain below the traditional 6.0 month level which is considered normal
This company is focused on building homes in some of the fastest growing markets in the country. Century Communities Inc. (NYSE: CCS) is involved in the development, design, construction, marketing and sale of single-family attached and detached homes, as well as acquisition, entitlement and development of land. The company sells homes through its sales representatives, as well as through independent real estate brokers.
The company builds single-family homes, townhomes and flats that incorporate high-merit designs and proficient craftsmanship in the posh areas of Colorado, Georgia, Nevada, Texas and Utah. Further, it is the parent company of Jimmy Jacobs Homes and Grand View Builders.
The Wedbush price target for the stock is $30, but the Wall Street consensus target is much higher at $39.82. The stock closed most recently at $25.55 a share.
This is one of the highest volume builders in the United States. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country, delivering roughly 37,000 homes in fiscal 2015. The company is positioned in 78 metropolitan markets in six major regions, and it develops single-family homes for first-time and move-up buyers.
Approximately 75% of revenue is derived from the Southeast, South Central and West regions. The company also provides mortgage financing and title agency services to homebuyers. The Wedbush team likes the liquidity and size of a builder like D.R. Horton, as the company has a market capitalization of over $10 billion.
Shareholders are paid a 1.2% dividend. Wedbush has a $36 price target on the shares, and the consensus target is $34.78. The stock closed most recently at $33.46.
This is another well-known company that the Wedbush team is positive on. KB Home (NYSE: KBH) is one of the largest U.S. homebuilders, with roughly 2% market share. The company builds single-family homes, townhomes and condos for first-time, move-up and active adult buyers.
KB Homes is positioned in roughly 40 markets with around 70% to 75% of revenues attributable to the West and Central regions. KBH also provides mortgage services through a joint venture with Nationstar. Founded in 1957, and the first homebuilder listed on the New York Stock Exchange, the company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them.
Shareholders are paid a small 0.5% dividend. The $22 Wedbush price target compares with the consensus target of $18.71. Note that shares closed at $19.75 on Tuesday.
This is a smaller company that may be off investors’ radar screens. M/I Homes Inc. (NYSE: MHO) operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Maryland, Virginia, North Carolina, Florida, and Texas. It operates through Midwest Homebuilding, Southern Homebuilding, Mid-Atlantic Homebuilding and Financial Services segments. The company designs, constructs, markets and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers under the M/I Homes and Showcase Collection brand names.
The company also purchases undeveloped land to develop into developed lots of single-family homes, as well as for sale to others. In addition, M/I Homes also originates and sells mortgages, and it serves as a title insurance agent by providing title insurance policies, examination and closing services to purchasers of its homes.
Wedbush has set a price objective of $27. The consensus target price is at $26.50. The shares closed most recently at $24.19.
This is a smaller cap company, and it is focused on building in fast growing areas. TRI Pointe Group Inc. (NYSE: TPH) engages in the design, construction and sale of single-family attached and detached homes in the United States. It also develops and sells land and lots.
The company operates a portfolio of six brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado, and Winchester Homes in Maryland and Virginia.
The company also offers financial services, such as mortgage financing and title services. The company sells homes through its own sales representatives and independent real estate brokers.
The Wedbush target price is $16. The consensus price objective is $14.95, and the stock closed most recently at $12.45.
These five top homebuilders are in areas experiencing for the most part solid growth. With the potential for economic and job growth on the horizon, and also tax cuts on the table, all these stocks could have a positive 2017 and way beyond.