Distressed homebuilder stocks are on sale

These companies boast strong growth prospects and represent attractive value opportunities.

Vikram Barhat 31 October, 2018 | 5:00PM

Barely a month after showing signs of a rebound, U.S. homebuilding has come under pressure as the September data points to a sharp pullback. Natural disasters like Hurricane Florence coupled with rising interest rates and higher home prices are making homeownership a wishful dream for many prospective homebuyers south of the border.

Despite evidence of the current weakness, however, longer-term macroeconomic indicators -- including job growth, rising income, a strong economy and favourable demographics -- remain supportive of the U.S. housing market. In fact, Morningstar forecasts U.S. housing starts to peak at 1.6 million in 2022, from 1.2 million at present, as pent-up demand is unlocked. Morningstar equity analyst Brian Bernard remains bullish on "several more years of solid residential construction ahead, driven by the large and aging millennial population, continued job and wage growth and an increased supply of entry-level homes.

For now, though, the Dow Jones U.S. Select Home Construction Total Return Index has fallen nearly 30% for the year to date compared to nearly 5% gains for the S&P 500, as of Oct 24. Given the current levels of market softness, this may be a good time to comb the sector for good bargains.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
NVR Inc3,270.71 USD0.81
PulteGroup Inc35.01 USD3.34
Toll Brothers Inc33.60 USD4.71

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a freelance writer.

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