4 Stocks To Ride 9-Year High U.S. Home Resales

Buoyed by affordable home financing and a stable jobs market, sales of previously owned homes touched a record high in nearly a decade. Such sales account for roughly 90% of all the purchases in the U.S.

Thanks to solid housing starts and permit numbers, niggling concerns about supply constraints have also subsided. Add to this a steady rise in the U.S. housing market growth and we all know why it will be judicious to invest in stocks exposed to such a market.

Existing Home Sales Climb to 9-Year High

First time buyers have made a return as seen by rising sales of previously owned homes last month. According to the National Association of Realtors, sales of existing homes rose 1.1% in June from May to a seasonally adjusted rate of 5.57 million, its highest level since Feb 2007. This was in sharp contrast to the consensus estimate of sales falling to 5.46 million from May’s figure of 5.51 million.

Shares of first time buyers touched 33% in June, the highest level since July 2012. This is yet another evidence that the housing market is on a solid growth curve in spite of the much talked about supply constraints. Moreover, it runs against analysts’ predictions that the pace of home sales would moderate this year. Sales outperformed expectations and the reasons can well be traced to lower mortgage rates and strong jobs report (Read: U.S. Existing-Home Sales Climb to Strongest Rate in Nearly a Decade).

Low Mortgage Rates, Strong Jobs Data

British voters opted to leave the European Union, which stoked concerns about volatility in the financial markets worldwide. But, the housing industry wasn’t particularly concerned about the global ramifications of a Brexit. Brexit induced volatility had pushed investors to seek safe-haven assets such as bonds instead of riskier assets like equities.

Higher bond prices led to lower yields. This came as good news for home borrowers as mortgage rates also dipped, as they tend to follow the trajectory of the yield on the 10-Year Treasury bond. The average mortgage is paid off within 10 years, even though most are packaged as 30-year products. Hence, the 10-year bond acts as an indicator to measure interest rate change. According to Freddie Mac, the 30-year fixed rate mortgage averaged 3.45% last week ending on Thursday, down 4.04% from year-ago levels (Read: How Are Mortgage Rates Determined?).

Improvement in jobs numbers and wages also boosted the housing market. Per the Bureau of Labor Statistics, the U.S. economy created a total of 287,000 jobs in June, significantly higher than the consensus estimate of 177,000. Domestic economy added higher-than-expected new jobs for the first time in the last four months. Average hourly earnings also gained 0.1% or 2 cents in June from May to $25.61 per hour.

Housing Starts, Permits Reassuring

Returning to supply constraints, an uptick in new-home construction is also helping to address the issue. U.S. housing starts rose 4.8% to a seasonally adjusted rate of 1.189 million in June from the previous month, according to the Commerce Department. Starts on single-family homes climbed 4.4% in June from May, to 778,000. Starts on multifamily buildings that include apartments and condominiums also advanced 1.6% to 392,000 in June from May (Read: U.S. Housing Starts Rose 4.8% in June).

A bellwether for upcoming construction, building permits too rose 1.5% to 1.153 million in June. May’s permits were downwardly revised. A rise in the indicator of future housing activities bolstered optimism about the state of the housing industry since a permit is filed before construction begins. Even though the National Association of Home Builders reported that home builder sentiment slipped to 59 in July from 60 in June, it is still roughly in line with the earlier readings this year. Notably, June’s figure touched the highest level since January.

Housing Industry Enjoys Growth Trends: 4 Choices

The housing market’s growth is expected to hold steady with a rise of 0.6% quarter on quarter, according to the latest real estate analysis report. Moreover, encouraging second-quarter earnings release from major homebuilder Pulte Group (NYSE:PHM) boosted sentiments (read: PulteGroup (PHM) Tops Earnings & Sales Estimates in Q2).

Hence, it will be prudent to invest in housing related stocks with solid fundamentals. We have selected four such stocks related to the housing market that have a Zacks Rank #1 (Strong Buy) or #2 (Buy). Moreover, we have narrowed down our search with a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Owens Corning (NYSE:OC) produces and sells glass fiber reinforcements and other materials for composites; and residential and commercial building materials worldwide including the U.S. The company is headquartered in Toledo, OH. Owens Corning has a Zacks Rank #1 and a VGM score of ‘B’.

Gibraltar Industries, Inc. (NYSE:OC) manufactures and distributes building products in North America. The company is headquartered in Buffalo, NY. ROCK has a Zacks Rank #1 and a VGM score of ‘A’.

NCI Building Systems Inc. (NYSE:NCS) is an integrated manufacturer of metal products for the building industry in North America. The company is headquartered in Houston, TX. NCS has a Zacks Rank #1 and a VGM score of ‘A’.

US Concrete Inc (NASDAQ:USCR) produces and sells ready-mixed concrete, aggregates, and concrete-related products and services for the construction industry in the U.S. The company is headquartered in Euless, TX. USCR has a Zacks Rank #2 and a VGM score of ‘B’.