In this article, we will analyze the housing industry while discussing the 10 best home builder stocks to buy now.
Lowering Mortgages: A Sigh of Relief for the Housing Market?
Mortgage rates have dropped for six straight weeks to their lowest since February 2023 as the 30-year fixed-rate mortgage averaged 6.20% in the week ended September 12. While many experts believe that these rates will be in the 5% range by 2025, the gesture seems to be motivating for all those looking to buy a house but have long been priced out of the market. In an interview with CNBC, Bess Freedman, CEO of Brown Harris Stevens, mentioned how the anticipated Fed rate cut could be beneficial for the housing market but its effect would unfold gradually. The long-awaited move is also likely to help sellers escape the mortgage lock-in effect and finally put their houses on the market. The mortgage lock-in effect refers to existing homeowners holding onto their houses since they will have to pay a higher rate on a new house.
Diane Swonk, KPMG chief economist, talked about the downside of this positive news with CNBC saying that it couldn’t spur buyer activity a lot. In the existing housing market, there is a lot of pent-up demand especially with 12,000 millennials a day turning 35 and moving into their peak home-buying years. Many buyers are still waiting for mortgage rates to go even lower in the hopes of the Fed rate cut. Other than that, home affordability being at its worst since 2006 is further pushing out potential buyers. The root cause in this case remains decades of under-building which has restricted the prevailing supply. According to Swonk, the US zoning laws need to be rethought to solve this housing crisis
Therefore, homebuyers and homeowners in the current tight housing market tend to see a welcome sign in the form of lowering mortgage rates ahead of the rate cuts from the Federal Reserve. However, the market continues to be plagued with persistent supply shortages and affordability issues.
With that being said, let’s move to the 10 best home builder stocks to buy now.
Aerial view of a neighborhood with newly constructed single-family detached homes.
Our Methodology:
In order to compile a list of the 10 best home builder stocks to buy now, we first used a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best home builder stocks to buy now have been arranged in ascending order of their hedge fund holders, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Home Builder Stocks To Buy Now
10. Taylor Morrison Home Corporation (NYSE:TMHC)
Number of Hedge Fund Holders: 27
Taylor Morrison Home Corporation (NYSE:TMHC) is an Arizona-based homebuilder and developer. The company has operations across 20 markets in 12 states and satisfies the needs of diverse consumers including first-time, move-up, luxury, and resort lifestyle homebuyers. It also engages in the development of lifestyle-oriented horizontal apartment communities to cater to the needs of rental households. The firm’s financial services segment offers mortgage financing, title services, and homeowners’ insurance.
The home builder has a company legacy that dates back over 100 years. Its footprint spans some of the highest-growth markets and prime locations across the United States. Taylor Morrison continues to leverage the strength and stability of its strategically diversified consumer and geographic strategy to deliver results while mitigating risks. The firm has a leading national, regional, and local scale with top 10 positions in 17 of 20 markets. Additionally, it has significant financial flexibility to deliver shareholder returns while investing in growth.
Taylor Morrison Home Corporation (NYSE:TMHC) delivered a solid performance during the fiscal second quarter of the year. The home builder saw its closings volume and home closings gross margin exceed its expectations. Furthermore, the company’s management forecasts continued growth and positive momentum in the business following the long-awaited Fed rate cuts.
The company looks in a good position to take advantage of the strong housing fundamentals in the coming years. As of Q2, Taylor Morrison Home Corporation (NYSE:TMHC) is held by 27 hedge funds with Balyasny Asset Management as the largest shareholder in the company.
9. Champion Homes, Inc. (NYSE:SKY)
Number of Hedge Fund Holders: 28
Champion Homes, Inc. (NYSE:SKY) serves as one of the biggest homebuilders in North America. The company has over 70 years of experience in building manufactured housing. It has 48 manufacturing facilities throughout the United States and western Canada. Apart from the core home-building business, the firm provides construction services for installing and setting up factory-built homes. It operates a factory-direct retail business with 72 US retail locations while offering transportation services to manufactured housing and other industries.
The business strategies of Champion Homes, Inc. (NYSE:SKY) are proving to sustain its market leadership position. Other than pursuing organic and acquisition strategies, the company is enhancing the customer’s digital experience by enabling them to design, shop, and price homes online. It is also investing in production automation technology to improve product yield and quality. Furthermore, the market demographic trends seem to align in the company’s favor since 60% of the US population cannot afford a traditional home. Furthermore, millennials and baby boomers are the fastest-growing age segments while accounting for 70% of manufactured home sales.
For the first quarter of fiscal 2025, the company saw growing sales and backlog which reflected an increase in demand for its homes. Net sales increased 35.1% year-over-year. The home builder had $548.9 million of cash and cash equivalents, as of June 29, with an increase of $53.9 million in the current quarter.
The home builder’s dominant position in North America, industry-leading family of brands, investments in growth strategies, and material financial results make it promising. As of 2024’s second quarter, the stock is held by 28 hedge funds and ranks 9th among the 10 best home builder stocks to buy now. MAK Capital One is the largest shareholder in the firm.