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Buy 3 Housing Stocks as New Home Sales Increase

The American housing market is bustling with activity, courtesy of significantly lower mortgage rates, which were a result of the Fed’s dovish stance. As sales of new homes rise and more building permits are issued, one can only expect this ramped-up activity to continue growing.

In such a scenario, instead of just focusing on homebuilding stocks, one could also pay attention to other stocks that are closely tied to a new home. Let’s take a look.

New Home Sales Highest Since 2007

The housing market’s strength is evident in January’s new U.S. single-family home sales, which are at a 12.5-year high. This very strength could keep the U.S. economy going through the longest bull market in history amid fears of the new epidemic. Although housing accounts for nearly 3.1% of the U.S. gross domestic product, it leaves a significant impact on the economy.

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Feb 26, new home sales rose 7.9% from December’s revised rateof 708,000 to a seasonally adjusted annual rate of 764,000 units in January, touching the highest level since July 2007.

Given that mortgage rates are already low, new home sales could inch further up ahead. After all, building permits for privately-owned housing units also hit a 13-year high in January (rising 9.2%) and housing starts declined lower than expected in the same month. These factors further confirm the housing market’s strength.

Mortgage Rates at Eight-Year Low

A major factor that is boosting the sale of new homes is the sinking mortgage rates. Per Mortgage News Daily, the popular 30-year fixed mortgage rate dropped to an eight-year low of 3.34% on Feb 24.

It reflects the impact of coronavirus fears on mortgage rates. After all, the epidemic woes massively affected the financial markets, pulling down the U.S. bond yields.

Since mortgage rates loosely follow the 10-year Treasury yield, it sent the rates down to an eight-year low. Of course, the Fed’s three interest rate cuts last year also sent mortgage rates plunging, thereby surging in activities within the housing market.

These Companies May Expect to Benefit: Here’s Why

Given the growth curve in new home sales, one may expect a surge in consumer expenditures on household products, such as furniture, appliances and interior-building products, etc. After all, these are the necessary goods for making a newly-finished home habitable. This is why one may take a close look at the industries that offer such products.

3 Stocks in a Sweet Spot

We therefore hand-picked three stocks that are well-positioned to gain from the housing market strength. All carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

La-Z-Boy Incorporated LZB is a manufacturer and marketer of furniture, accessories and casegoods furniture products etc. The Zacks Consensus Estimate for La-Z-Boy’s current-year earnings has moved 4.4% north in the past 60 days. La-Z-Boy, which belongs to the Zacks Furniture industry, sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Builders FirstSource, Inc. BLDR is a manufacturer and supplier of building materials, manufactured components and construction services to homebuilders, consumers and remodelers alike.

The Zacks Consensus Estimate for Builders FirstSource’s current-year earnings has moved 3.2% north in the past 60 days. Builders FirstSource, which belongs to the Zacks Building Products - Retail industry, carries a Zacks Rank #2.

BMC Stock Holdings, Inc. BMCH is a distributor of lumber and building materials to new construction, repair and remodeling contractors.The Zacks Consensus Estimate for BMC Stock’s current-year earnings has moved 0.5% north in the past 60 days. BMC Stock, which belongs to the Zacks Building Products - Retail industry, carries a Zacks Rank #2.

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Click to get this free report La-Z-Boy Incorporated (LZB) : Free Stock Analysis Report Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report BMC Stock Holdings, Inc. (BMCH) : Free Stock Analysis Report To read this article on Zacks.com click here.