The U.S. housing market gained momentum in October on rebuilding efforts after successive hurricanes. This is especially true as existing home sales rose 2% to a seasonally adjusted annual rate of 5.48 million units. This is higher than September’s revised sales of 5.37 million units and Reuters’ expectation of 5.42 million units.
However, existing home sales fell 0.9% on a year-over-year basis, for the second consecutive time, and remained below a 10-year-high of 5.70 million units in March. The major headwind facing homebuilders is shortage of both labor and houses that is pushing up the cost of materials and in turn home prices, discouraging people from buying homes. Notably, the median existing-home price for all types of houses in October was $247,000, up 5.5% year over year.
Another round of data suggests that homebuilders are back on track. Housing starts climbed 13.8% to a seasonally adjusted annual rate of 1.29 million homes, the highest level since October 2016. Meanwhile, new applications for building permits, a construction bellwether for the coming months, rose 5.9% to an annual rate of 1.3 million. Further, homebuilder confidence rose to 70 this month, the highest reading since March as indicated by the National Association of Home Builders/Wells Fargo sentiment index.
The solid trend is likely to continue in the sector given that lower mortgage rates, ongoing job creation, wage gains, and accelerating household formations will continue to fuel growth, creating a buying opportunity in homebuilders and housing-related stocks. As per mortgage-finance company Freddie Mac, mortgage rates remained low with the average rate for 30-year fixed mortgage rate dropping 3 bps to 3.92%, over the week ending Nov 22.
Further, slower and gradual rate hikes will not thwart the growth prospect of the sector, at least in the near term. Moreover, the homebuilder industry has a solid Zacks Rank in the top 19%, suggesting strong growth potential.
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