We recently published a list of 10 Best Residential Real Estate Stocks To Buy. In this article, we are going to take a look at where PulteGroup, Inc. (NYSE:PHM) stands against other best residential real estate stocks to buy.
Home Buyers Have More Bargaining Power than Sellers, Says Economist
The rate hikes which started in March 2022 as a battle against inflation are coming to an end as the Federal Reserve finally decided to cut rates for the first time since 2020. The rate cuts were kicked off with a half-percentage point reduction on September 18. This long-awaited move lowered rates to about 4.875%, at the midpoint. With an optimistic view in mind about inflation cooling off, the big rate cut will be catering to the employment slowdown. The news just doesn’t end here since the officials have pointed to another half-point reduction before the year’s end.
For the housing market, the big rate cut could be taken as a signal from the Fed to reverse the mortgage lock-in effect but the extent of easing matters. While an aggressive reduction in rates will reduce financing costs, create an inventory of existing homes, and reduce pressure on home prices, a gradual reduction won’t be of much value for the homeowners who are holding on to their early-pandemic low mortgage rates. The anticipation of a rate cut at the September Fed meeting has brought down mortgage rates to as low as their lowest since February 2023. However, the dropping mortgage rates are a double-edged sword as they could potentially raise the demand so much thereby making home buying even harder.
In an interview with CNBC, Senior Economist Orphe Divounguy from Zillow emphasized the impact of rate cuts on housing affordability. Although affordability remains a challenge, the market is improving. In his opinion, the best time to act for home buyers is right now as the current scenario offers them a perfect entry point with more options and bargaining power being somewhat shifted from the sellers to the buyers. The number of active listings on the real estate platform has gone up by 22% since last year. Although short-term rates are expected to decline, longer-term rates like mortgage rates could remain at the current level. He expects more buyers than sellers in the market with improving affordability. Sellers will also be in good shape as well-priced and well-marketed homes are selling in just 20 days, according to company data.
With that being said, let’s move to the 10 best residential real estate stocks to buy.
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Construction workers laying bricks during the residential development of multiple lots.
PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Holders: 35
PulteGroup, Inc. (NYSE:PHM) is one of America’s largest homebuilders with operations in over 40 major cities. It was founded in 1950 and has delivered almost 750,000 homes across the country. The homebuilder caters to first-time, move-up, and active-adult homebuyers through its brands Pulte, Centex, Del Webb, DiVosta, American West, and John Wieland Homes and Neighborhoods. Through its financial services segment, the company offers mortgage financing and title agency services.
Through a portfolio of industry-leading brands, Pulte serves buyers at every stage of their lives. The Del Webb and DiVosta brands are the recognized leaders for buyers over 55. First-time homebuyers can seek value for their money in a Centex home and the luxury homebuilder John Wieland Homes and Neighborhoods offers new construction and neighborhoods in some of the most desirable locations. These brands position the firm well in the market.
Pulte recently reported another quarter of overall strong financial performance. During the second quarter, earnings increased 19% to $3.83 per share and home sale revenues increased 10% to $4.4 billion. Ryan Marshall, President and Chief Executive Officer of PulteGroup, mentioned the structural shortage of homes due to underbuilding as a favorable dynamic that is rather long-term. For the trailing 12 months, the firm’s return on equity of 27.1% reflects how it efficiently navigated the market conditions.
Pulte is in a good position to drive strong results going forward. While the home builder will be growing its community count growth given the strength of its land pipeline, it continues to start homes at a pace consistent with closing 31,000 homes this year. The company will also be undergoing a transition for its CFO succession planned for February 2025. The new CFO Jim Ossowski, currently Senior Vice President of Finance, has a tremendous 22-year career at the company.
Pulte benefits from one of the leading positions in the US housing market, prevailing market conditions, a portfolio of leading brands, and a strong financial performance. Additionally, PulteGroup, Inc. (NYSE:PHM) is currently cheap as it trades at 11 times its forward earnings, a discount of 34.36% to the sector. The stock ranks 7th among the 10 best residential real estate stocks to buy.
Overall, PHM ranks 7th on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of PHM 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 PHM 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 is originally published at Insider Monkey.
