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 Toll Brothers, Inc. (NYSE:TOL) 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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A team of architects meeting around a blueprint to discuss the design of a high-end apartment rental.
Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 46
Toll Brothers, Inc. (NYSE:TOL) was founded in southeastern Pennsylvania in 1967 by the brothers Bob and Bruce who wanted to create a home-building company that was always striving to reach a higher standard. The firm expanded across the US over the years and emerged as America’s luxury home builder. Currently, it operates in 24 states and over 60 markets nationwide.
The home builder’s national footprint positions it well for growth. The growth prospects are even stronger as it has the widest variety of products and the widest range of prices of any of the builders. The prestigious and desirable locations to build in, distinctive architecture, unrivaled choice, and exceptional customer service are some of the Toll Brothers’ advantages that set them apart from the competition.
Toll Brothers recently witnessed a record third-quarter home sales revenue of $2.72 billion. Since the current market is experiencing a general housing inventory shortage and falling mortgage rates, the prospects for the home builder remain positive. Notable demographic trends that will benefit the firm’s business in the future will be the baby boomers looking for new houses as they retire and the older millennials hitting their 40s over the next decade.
The home builder has sufficient land under control as it plans to grow its community count next year. At the quarter end, it owned or controlled 72,700 lots. This strong land position offers sufficient lots required for growth in fiscal 2025 and later. Leveraging this position, Toll Brothers is striving for its goal of operating from 410 communities by fiscal year-end, an expected 11% growth as compared to the year’s start.
Toll Brothers has brought its sales up 25% year-to-date amid elevated mortgage rates. The unique advantages in an industry as competitive as housing, favoring trends, a healthy balance sheet with low net debt, and planned growth opportunities rank Toll Brothers, Inc. (NYSE:TOL) among the best residential real estate stocks to buy.
Overall, TOL ranks 4th on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of TOL 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 TOL 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.
