Some of this month’s housing reports have suggested that the sector’s recovery is slowing. However, data released this week have been positive or indicated year-over-year improvements. A new poll conducted by Reuters suggests that the improving jobs market will reinvigorate the sector this year.
Jobs Outlook Bright
Nearly a million jobs have been created over the last three months. This is the highest number of jobs added in 19 years. Additionally, the number of applicants per position dropped to its lowest point in eight years. In her testimony to Congress, Fed Chair Janet Yellen has expressed satisfaction with the employment situation. She has indicated that this is likely to encourage a rate hike late in the year.
However, the resultant increase in mortgage rates is projected to be lower than earlier estimated, according to the Reuters poll. The 30-year mortgage rate is projected to increase to 4% in 2015 and increase to 4.58% in 2016. November projection placed these figures at 4.55% and 5.2%. Currently, the 30-year mortgage rate is 3.76%.
Prices, Sales to Rise
This increase in jobs growth is expected to encourage first-time buyers to re-enter the housing market. First-time buyers have been deterred by an increase in home prices and tight housing supply for some time now. According to the survey, the S&P/Case-Shiller 20-city home price index will increase at around 4% during both 2015 and 2016.
Additionally, wage growth has failed to keep up with the increase in home prices. However, average hourly earnings increased 0.5%, or 12 cents, to $24.75 in January. Year-on-year growth in average hourly wages came in at 2.2% in January.
Existing home sales are projected to hit 5.10 million units during the first quarter before increasing to 5.17 million units in the second quarter. However, this is lower than the November forecast of 5.20 million and 5.26 million units for these quarters.
Latest Data Encouraging
The latest existing home sales report showed that the metric slumped to a nine-month low during January. Existing home sales declined 4.9% to a 4.82 million pace in January. However, sales were 3.2% higher than year-ago figures. This is the fourth consecutive month that existing home sales have come in above year-ago numbers.
Meanwhile, the S&P/Case-Shiller 20-city home price index grew 4.5% year over year in December, slightly higher than 4.3% in November. The December increase was better than general market expectations.
Additionally, new home sales have slipped only marginally, by 0.2% to 481,000 units. December sales were revised upward by 1,000 units to 482,000 units, a six and a half year high. Meanwhile, housing supply moved up 1.4% in January to 218,000. This is the highest level since Mar 2010.
Our Choices
Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank.
Kirkland's Inc. (KIRK) is a leading specialty retailer of home decor products in the United States. The company sells framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The company's stores also offer holiday merchandise as well as throughout-the-year gifts.
Kirkland's holds a Zacks Rank #2 (Buy) and has expected earnings growth of 20.6%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 19.53.
Lowe's Companies Inc. (LOW) is the world’s second largest home improvement retailer. The company primarily operates in the US, Canada and Mexico. The company offers services to homeowners, renters and commercial business customers. Homeowners and renters principally include do-it-yourself (DIY) customers and do-it-for-me (DIFM) customers who utilize the company s installed sales programs.
Currently, the company holds a Zacks Rank #2 (Buy) and has expected earnings growth of 22.4%. It has a P/E (F1) of 22.84x.
Williams-Sonoma Inc. (WSM) is a specialty retailer of home products which uses multiple channels to reach its customers. The company sells its products through its own retail stores in the U.S., Canada and Puerto Rico. It also has franchisees in certain countries in the Middle East. The company also uses catalogs and the Internet to reach its customers.
Apart from a Zacks Rank #2 (Buy), Williams-Sonoma has expected earnings growth of 13.1%. It has a P/E (F1) of 22.37x.
An improving jobs market is expected to provide a significant boost to the housing sector this year. Additionally, lower fuel prices and a resurgent economy are other major positives. This is why adding these stocks to your portfolio would make for a prudent choice.
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