3 Residential Stocks to Buy as the Housing Sector Recovers

Industry Overview - The housing market in 2023 has been characterized by rising prices and mortgage rates, leading to increased monthly mortgage payments, impacting both aspiring and existing homeowners [1] - The restrictive monetary policy by the Federal Reserve aimed at controlling inflation has significantly contributed to the alarming rise in home prices [2] - New home sales showed fluctuations, with a seasonally adjusted annual rate of 634,000 in April, down 4.7% from March [3] - Existing home sales also declined by 1.9% in April, totaling a seasonally adjusted annual rate of 4.14 million, reflecting a similar year-over-year decrease [3] Future Projections - The National Association of Realtors forecasts a 9% increase in existing home sales in 2024, reaching 4.46 million, and a further 13.2% increase in 2025 to 5.05 million [4] - Housing starts are expected to rise by 1.2% in 2024 to 1.43 million and by 4.9% in 2025 to 1.5 million [4] Current Market Conditions - The median price for an existing home is currently $393,500, marking a 4.8% increase from the previous year, continuing a trend of year-over-year price increases for nine consecutive months [5] - Despite potential improvements in mortgage rates, they remain at a high level, prompting potential buyers to consider waiting for further rate reductions before making investment decisions [5] Investment Opportunities - Three residential stocks are highlighted as potential investment opportunities, all holding a Zacks Rank of 1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B, indicating favorable metrics for selection [6] - M/I Homes, Inc. (MHO) has an expected earnings growth rate of 12.2% for the current year, with a Zacks Consensus Estimate improvement of 11.9% over the past 60 days [7] - KB Home (KBH) is projected to have a 13.9% earnings growth rate for the current year, with a 2.8% improvement in the Zacks Consensus Estimate over the past 60 days [8] - Centerspace (CSR) is expected to see a 4.9% earnings growth rate for the next year, with a 2% improvement in the Zacks Consensus Estimate over the past 60 days [8]