The recent spike in Treasury bond yields that resulted in an uptick in mortgage rates does not favor the homebuilding industry. However, homebuilders have seen an upsurge in their share prices for most of this year, thanks to a rebound in new home sales that took a beating last year due to the housing slump.
Homebuilders, all through this year, have applied innovative strategies to attract potential buyers of new homes. They have kept affordable prices on the properties and offered mortgage rate buydowns. Shortage of existing homes in the housing market has also increased the requirement for newly constructed homes, eventually enhancing the sales figures for housebuilders.
In reality, the construction of new homes picked up in July. After being adjusted seasonally, the annual rate of housing starts climbed to 1.452 million last month, per the Census Bureau. It surpassed market expectations of 1.448 million.
Single-family housing starts, which mostly constitute the bulk of the construction, jumped 6.7% in July from the prior month to a seasonally adjusted annual rate of 983,000 units. The jump in single-family housing starts was primarily seen in the western part of the United States. Additionally, building permits ticked up 0.1% to an annual rate of 1.442 million units last month. Applications to build one-family homes increased to their highest level in more than a year.
Let us also not forget that construction spending in the United States already increased strongly in June. Outlays on constructing single and multifamily housing establishments rose 0.5% in June, while May’s figure was revised to show spending increasing 1.1% from an earlier reported 0.9%, per the Commerce Department.
What’s more, one of the best role models for any investor, Warren Buffett, CEO of Berkshire Hathaway Inc. (BRK.B) recently disclosed that he has made big bets on these three U.S. home builders in the second quarter of 2023. The Oracle of Omaha’s Berkshire Hathaway owned DR Horton, Lennar and NVR shares worth a total of $814 million, as of Jun 30.
Thus, these stocks make compelling investment choices at the moment. The stocks boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
D.R. Horton is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses. D.R. Horton’s estimated earnings growth rate for the next five-year period is 18.5%. Its shares have already gained 39.1% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 8.8% over the past 60 days. DHI, presently, has a Zacks Rank #1.
Lennar is engaged in homebuilding services in the United States. Lennar’s estimated earnings growth rate for the next five-year period is 6%. Its shares have already gained 29.6% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 15.3% over the past 60 days. LEN, currently, has a Zacks Rank #1.
NVR is engaged in the construction and sale of single-family detached homes. NVR’s estimated earnings growth rate for the next five-year period is 4.3%. Its shares have already gained 26.9% over the past five years. The Zacks Consensus Estimate for its current-year earnings has moved up 7.9% over the past 60 days. NVR, presently, has a Zacks Rank #2.
Shares of D.R. Horton, Lennar and NVR have gained 30.7%, 29.3% and 30.6%, respectively, so far this year.
Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
This article originally appeared on Zacks
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