The Case-Shiller 20-city Composite Index, representing home prices in U.S. urban markets, increased 13.3% year-over-year. Home prices rose the most across Phoenix, Ariz., San Diego, Calif., and Seattle, Wash.
As U.S. home prices continue to climb higher, housing stocks are benefiting, including Toll Brothers, D.R. Horton and Lennar, all of which are trading decidedly in the green today. According to Allianz chief economic adviser Mohamed El-Erian, “the latest data came in hotter than expected.”
The latest economic indicator comes on the heels of the recently released housing starts and building permits data, which according to Stansberry Investor shows that demand is outpacing supply in the housing market. This isn’t apparent at first glance, since both sets of results fell short of expectations. But if you dig deeper, you see that housing starts returned to 2006 highs, suggesting that construction is underway, a bet that buyers are probably in the pipeline.
Homebuilder stocks are off their peak levels of the month, which could represent a buying opportunity. Evercore ISI analyst Stephen Kim is feeling good about Lennar (LEN), D.R. Horton (DHI) and Toll Brothers (TOL), saying that the current supply/demand dynamics are “15 years in the making and [are] impervious to rapid change.”
Lennar is up 2.6% today to USD 97.65, inching closer to its 52-week high of USD 110. The stock trades at about eight-times this year’s consensus earnings estimate, as per ISI’s Kim, who has a USD 121 price target on LEN.
Toll Brothers is up 2.5% at last check. The stock trades at approximately 11 times its projected 2021 earnings, according to Kim, who has a USD 85 price target on TOL.
D.R. Horton stock is up nearly 3% today. The stock trades at eight times its 2021 estimated earnings. Kim has a price target of USD 123 attached to DHI.
The mood in the housing market is upbeat, and the sector appears to be only getting stronger as the economic recovery continues to unfold. While there is no telling how long it can last, as long as the fundamentals remain sound and momentum continues, chances are good that homebuilder stocks have more runway for gains and any pullback should be viewed as a buying opportunity.
For a look at all of today’s economic events, check out our economic calendar.