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New Home Sales Are Surging -- and These Stocks May Benefit

By Joe Tenebruso – Updated Sep 26, 2019 at 9:23AM

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A strengthening U.S. housing market will be a boon for this sector.

The U.S. housing market may be stronger than many investors think.

Sales of new U.S. single-family homes leapt 7.1% in August, well above economists' estimates for growth of only 3.5%. 

That placed the closely following metric at a seasonally adjusted annual rate of 713,000 houses. New home sales in July were also revised to 666,000 units, up from a prior figure of 635,000.

Historically low mortgage rates appear to be boosting demand for new homes. The Federal Reserve cut interest rates in July and again earlier this month. The rate cuts are intended to stimulate the economy by reducing borrowing costs for individuals and businesses. Following these moves, 30-year fixed mortgage rates have fallen below 4%.

Lower mortgage rates help to make housing more affordable, which tends to increase the pool of eligible homebuyers. This appears to be the case in today's market, with housing starts rising to their highest level in more than a decade in August.

The strong recent sales come despite a shortage of new homes available for sale. Only 326,000 new homes were on the market in August, the lowest level since September 2018.

Toy houses on top of rising stacks of gold coins.

Image source: Getty Images.

The investing angle

Investors seeking a way to profit from these trends may want to take a look at homebuilder stocks such as Lennar (LEN 4.84%), Toll Brothers (TOL 4.05%), and KB Home (KBH 5.36%).

Analysts at Raymond James upgraded these three homebuilder stocks earlier today to outperform from market perform, on the expectation that their upcoming earnings reports will reflect the housing market's recent strength and improving fundamentals.

Looking further ahead, rising demand for new homes should fuel long-term demand for these companies' homebuilding services.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lennar Corporation Stock Quote
Lennar Corporation
LEN
$78.16 (4.84%) $3.61
KB Home Stock Quote
KB Home
KBH
$27.31 (5.36%) $1.39
Toll Brothers, Inc. Stock Quote
Toll Brothers, Inc.
TOL
$43.70 (4.05%) $1.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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