The U.S. housing market remains strong. Existing home sales throughout America rose 1.4% in June to a seasonally adjusted annual rate of 5.86 million units according to the National Association of Realtors. And home prices have been even stronger.
Nationwide, U.S. home prices increased by 17.2% in June compared with the same month of 2020 — a record high. More than half (50%) of homes sold in the U.S. this year have fetched above the asking price. In such a strong housing market, certain stocks perform extremely well.
Here are three real estate stocks to consider buying to capitalize on the hot housing market.
From construction companies to realtors and suppliers, many companies are benefitting from the current U.S. housing market and likely to continue doing well in coming months. Let’s take a closer look
Real Estate Stocks to Buy for the Hot Housing Market: Lennar (LEN)
Fontainebleau, Florida-based firm Lennar is the biggest home construction company in the U.S. With operations in 21 states, no company builds more houses nationwide than LEN.
This company is front-and-center in the current housing boom and LEN stock is a great option for investors wanting to play the hot real estate market. Plus, Lennar also runs a thriving commercial mortgage lending business.
Year-to-date, LEN stock is up 43% at $105.85 a share. Lennar stock has risen 7% in the past month as the housing market’s hot streak extended into the summer months.
Lennar’s share price has also been given a lift by stronger than expected results for the fiscal first quarter. The home builder reported earnings per share (EPS) of $2.04, well above the $1.71 that Wall Street expected. Quarterly sales of $5.3 billion also trounced analyst estimates and came in 18% higher than a year earlier.
Industry watchers especially liked Lennar’s forecast that it will build between 62,000 and 64,000 new homes this year and earn a 25% gross profit margin on their $400,000 average selling price. That means that for every home Lennar sells, it will earn $100,000 profit.
Zillow Group (ZG)
Investors wanting a major U.S. real estate stock at an extremely cheap price need look no further than Zillow Group. Shares of the online real estate marketplace have tanked this year, down 25% from the start of January to their current price of $102.31.
That’s a tough pill to swallow for investors who bought at the stock’s peak earlier this year. In mid-February, ZG stock was trading at an all-time high of $212.40. Then came the rotation out of technology stocks into cyclical securities, and Zillow has been on the downslope ever since.
However, opportunistic investors should see ZG stock as on sale right now. Despite the poor performance of its share price, a lot is going right for Zillow and management is taking the right steps to position the company for long-term success.
Zillow is succeeding in moving the entire home buying and selling process online. Many U.S. homeowners are now selling their house directly to Zillow via the company’s “direct buying” process. In fact, direct buying and selling of houses now makes up nearly 60% of Zillow’s revenue.
The company’s revenue totaled $471.3 million in this year’s second quarter, more than double the $213.6 million recorded a year earlier. Revenue from Zillow’s traditional mortgage loans department grew 1,073% in the second quarter from a year ago.
The strong results enabled Zillow to forecast that it expects to report revenue of $2 billion for this year’s fourth and final quarter.
Home Depot (HD)
As the housing market goes, so goes retailer Home Depot. Hot housing markets lead to equally scorching home renovation and improvement markets. Plus, Americans have been aggressively upgrading their domiciles since the Covid-19 pandemic forced everyone to both work and live at home. That’s helped Home Depot to notch several new highs over the past 18 months. The Atlanta, Georgia-based company’s net sales rose 20% last year to a record $132 billion, resulting in a 14% rise in net profits.
Home builders purchasing lumber and other materials have also given Home Depot a lift. Building materials are Home Depot’s biggest revenue generator, accounting for 35% of the retailer’s 2020 sales (totaling $46.5 billion). In fact, lumber products (a subset of the building materials category) are now the third-biggest sales segment Home Depot (8.6%), only surpassed by indoor garden items and appliances.
HD stock has been a winner so far in 2021, up 26% year-to-date at $332.25 per share. The stock is up 3% over the past month.
Disclosure: On the date of publication, Joel Baglole held long positions in LEN and ZG. He did not have (either directly or indirectly) any positions in the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.