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 NVR, Inc. (NYSE:NVR) 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.
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).
A team of construction workers laboring together to build a townhome complex.
NVR, Inc. (NYSE:NVR)
Number of Hedge Fund Holders: 47
The American home builder NVR, Inc. (NYSE:NVR) is headquartered in Reston, Virginia. The company’s homebuilding operations sell and construct homes under three brand names including Ryan Homes, NVHomes, and Heartland Homes. NVR also operates a mortgage subsidiary for its home buyers whereas NVR Settlement Services subsidiary offers settlement and title services.
Historically, NVR, Inc. (NYSE:NVR) has been one of the market leaders in each of the markets where it builds homes. This has enabled the firm to achieve competitive advantages while experiencing a growth trajectory within these markets. The firm’s financial performance is a testament to its market-leading position. Over the decade, NVR has grown its top line by 8.81% and its bottom line by 19.64%.
Among its peers, NVR, Inc. (NYSE:NVR) has a solid market capitalization of $29.01 billion. The firm kicked off the new year with a year-over-year profit increase of 14% despite the extremely tight housing market. The home builder is also remarked for its impressive return on equity of 39.54% which clearly indicates that the firm has proficiently generated profits and surpasses major competitors including Pulte, Toll Brothers, and Taylor Morrison by a prominent margin.
The business segments ‘homebuilding’ and ‘mortgage banking’ are a strength for the home builder. During the second quarter of 2024, homebuilding revenues rose 12% from $2.28 billion in 2023 to $2.55 billion in this quarter. New orders increased by 3% to 6,067 units as compared to 5,905 units in the second quarter of 2023. Income before tax from the homebuilding segment climbed 12% while income before tax from the mortgage banking segment went up by 23%, year-over-year.
More than 555,000 homeowners have trusted NVR for their families which reflects the home builder’s strength and reputation. As of Q2, the firm is held by 47 hedge funds thereby ranking on our list. Diamond Hill Capital is the largest shareholder in the company.
Overall, NVR ranks 3rd on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of NVR 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 NVR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
