Housing demand has grown significantly over the past year, aided by a low-interest-rate environment and a widespread desire for better and bigger living spaces. And because the hot housing market faces low inventory and rising prices, we think it could be beneficial to bet now on fundamentally sound homebuilding stocks Lennar (LEN), PulteGroup (NYSE:), and Skyline Champion (NYSE:). Let’s evaluate these companies.The housing market has remained red hot amid even the worst of the COVID-19 pandemic thanks to the near-zero interest-rate environment and a rising demand for bigger and better domiciles in suburban areas in response to requisite remote working, learning and entertainment. And because the work-from-home trend is expected to continue even in the post-pandemic world, given its benefits to employees and employers, the demand for new houses should not decline anytime soon.
The NAHB housing market index in the United States edged up one point to 83 in April 2021. Moreover, investors’ interest in the homebuilding stocks is evident in the SPDR S&P Homebuilders ETF’s (XHB) 27.2% gains over the past three months compared to the SPDR S&P 500 ETF Trust (SPY) 13.5% returns.
Given the powerful demand for houses, suppliers are challenged by low inventory. Millennial home ownership is also on the rise despite rising home prices. Amid this favorable backdrop, we think it is wise to bet on established homebuilding companies that are positioned to capitalize on the tailwinds. We believe Lennar Corporation (NYSE:), PulteGroup, Inc. (PHM), and Skyline Champion Corporation (SKY) are such companies and are best picks in this space now.
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