We recently compiled a list titled Real Estate Investing For Beginners: 11 Best Stocks To Buy. In this article, we will look at where Century Communities, Inc. (NYSE:CCS) ranks among the best real estate stocks to buy for beginners.
Could the Fed Interest Rate Cuts Potentially Ease the Housing Market?
The Federal Reserve finally decided to cut rates beginning with a half-percentage point reduction on September 18. This long-awaited move lowered rates to a range between 4.75% and 5.00%. The big rate cut is believed to have a mixed effect on the housing market. Industry experts believe that this cut will motivate more people to list their homes and more homebuyers to enter the market.
Simultaneously, falling mortgage rates have also been spurring the demand from homebuyers. The question that keeps coming up is how mortgage rates dropping further might actually drive home prices up as more buyers enter the market. In an interview with Straight Arrow News, Selma Hepp, Chief Economist at CoreLogic, mentioned how mortgage rates dropped in early spring of 2023 and led to a huge buyer influx resulting in higher home prices. On the bright side, a lot of inventory will be freed after being locked in for a long time, also referred to as the mortgage lock-in effect. Thus, the easing of locked-in inventory would restrict home price appreciation if mortgage rates decline more.
Meredith Whitney, founder and CEO of Meredith Whitney Advisory Group, seconded Hepp’s views while talking to CNBC. While she sees housing as the most important issue over the next few years, she calls affordability the biggest major problem. In her view, rates need to fall by another 50 to 100 base points, and importantly, home prices need to go down by 15% for the market to be healthy again. Therefore, the next President should allow the housing market to decline by 15%. This would eventually lead to a cheaper market that more people can afford to enter.
On the other hand, the future outlook of commercial real estate post-Fed rate cut will be more positive, as suggested by Gil Borok, Colliers U.S. and Latin America CEO. He explained to CNBC that the 50-basis point cut will go a long way to help commercial real estate and will spur new investment sales activity. With stronger returns to the office, offices are being utilized differently as compared to the pre-pandemic era, but they are being utilized more which is a good sign. Hence, the rate cut move should jolt office occupancy and multi-family home production.
Analysts see another positive aspect on the supply side of the market as they believe that the rate cut will ease out financing conditions for homebuilders and get them building again. Taking into account the news that officials have pointed to another half-point reduction before the year’s end, the builder sentiment can highly improve and contribute to fixing the currently low housing supply.
In conclusion, interest rate cuts have brought down the mortgage rates and are expected to bring more buyers to the market. More buyers imply more competition between them which points towards higher home prices. The main problem of US housing still revolves around decades of underbuilding and a chronic shortage of homes. However, homebuyers can feel optimistic since lower mortgage rates will unfreeze the for-sale market as existing homeowners escape the rate lock-in effect. Considering that nearly 9 in 10 mortgage holders have a rate below 6% as visible from Redfin data, the lock-in effect going away will significantly ease the tight housing market.
Our Methodology:
We used the Finviz screener to create a list of 25 real estate stocks with the highest market capitalization, as of September 21. We then selected the 11 stocks from our list that were the most popular among elite hedge funds, as of Q2 2024. The stocks are sorted in ascending order of the number of hedge funds that have stakes in them.
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).
Century Communities, Inc. (NYSE:CCS)
Number of Hedge Fund Holders: 25
Century Communities, Inc. (NYSE:CCS) is an American home builder that operates in 18 states and over 45 markets across the United States. The company’s flagship brand Century Communities offers everything from single-family floor plans to condos and townhomes. Meanwhile, Century Complete brand provides built-in savings through an online purchase process and a versatile selection of quick move-in homes. The home builder engages in all aspects of homebuilding including the acquisition, entitlement, and development of land, construction, innovative marketing, and sale of homes. Title, insurance, and lending services are also offered through the Parkway Title, IHL Home Insurance Agency, and Inspire Home Loan subsidiaries.
Century Communities, Inc. (NYSE:CCS) remains geographically diverse and strategically positioned through a well-set national footprint. Hence, it occupies meaningful market-share positions across high-growth US markets. The builder has also demonstrated a strong track record of growth as evident from its 21 consecutive years of profitability. The firm is targeting the broadest potential pool of customers through its concentration in the attractive, entry-level segment. Considering the decades-old low US housing supply, this focus allows the Century Complete brand to address the shortage.
Highlights from the firm’s fiscal second quarter include a 35% year-over-year increase in lot count and a 14% rise in the community count as compared to 2023. Backed up by the high demand for affordable new homes with quick move-ins, deliveries of 2,617 climbed 17% year-over-year. The home builder also saw growth in all of its segments with net new home contracts increasing by 20% year-over-year.
With a large national scale which drives greater purchasing power and enhanced homebuilding efficiencies, as well as a pattern of consistent growth, Century Communities, Inc. (NYSE:CCS) is a promising best real estate stock to buy.
Overall CCS ranks 11th on our list of the best real estate stocks to buy for beginners. While we acknowledge the potential of CCS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CCS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
