The U.S. homebuilding market has been on a tear ever since the economy started reopening last year. Despite supply chain constraints and rising costs, growing demand has kept this space thriving as reflected in the October homebuilding data.

This saw both new and existing home sales jump in October. Higher sales coupled with soaring homebuilder demand are thus likely to help the market in the coming days. So, it would be ideal to invest in stocks like Beazer Homes USA, Inc. (BZH Quick QuoteBZH - Free Report) , TRI Pointe Group, Inc. (TPH Quick QuoteTPH - Free Report) , Meritage Homes Corporation (MTH Quick QuoteMTH - Free Report) and Toll Brothers (TOL Quick QuoteTOL - Free Report) at this point.

New Home Sales Jump

The Commerce Department said on Nov 24 that sales of new homes rose 0.4% in October to an annual rate of 745,000 after jumping a solid 7.1% in the previous month. September’s new home sales were downwardly revised to 742,000 units.

Also, October’s figures surpassed economists’ forecast of a 1.3% decline to an annual rate of 790,000 from the previously reported September’s figure of 800,000.

Sales of new homes rose mainly in the South and Midwest. Sales jumped 11% in the Midwest to a rate of 81,000 units. In the South, new home sales grew 0.2% to a rate of 450,000 units.

October’s jump in new home sales comes despite builders facing rising costs and shortages in the supply of raw materials like copper and steel. At the same time, lumber prices, too, are skyrocketing and labor is getting scarce, pushing up new home prices. However, surging demand has been driving sales.

Homebuilding Market Poised to Grow

New home sales started picking up after the coronavirus outbreak as people scrambled to buy new homes in less-populated areas. Also, mortgage rates were at their historic lows last year, encouraging more people to buy new homes.

The demand has outshined surging mortgage rates, and labor and raw material costs. So, even though home prices are skyrocketing, people are not shying away from buying homes.

The Commerce Department also said in its report that the median price of new houses in October was $407,700, up 0.7% from last month’s $404,700 and 17.5% higher than last year’s $346,900.

The upbeat sentiment has also seen homebuilder’s confidence soaring over the past few months. The NAHB/Wells Fargo Housing Market Index rose to 83 in November from 80 in the previous month. This marks the third straight month of increase. Also, homebuilder sentiment hit a six-month high in October.

Building permits grew 4% in October, reflecting the growing demand for homes. Existing homes sales also grew 0.8% in October to a seasonally adjusted annual rate of 6.34 million units after an impressive 7% jump in September.

Our Choices

The jump in new and existing home sales in October, upbeat homebuilder sentiment and more building permits make this an opportune time to invest in homebuilding. We suggest four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are likely to gain ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA, Inc. designs, builds and sells single-family homes. The company designs homes to appeal primarily to entry-level and first move-up home buyers. BZH designs homes to appeal primarily to entry-level and first move-up home buyers. Beazer Homes’objective is to provide customers with homes that incorporate quality and value. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's home buyers.

Beazer Homes’ expected earnings growth rate for the current year is 23.7%. The Zacks Consensus Estimate for current-year earnings has improved 44% over the past 60 days.Shares of BZH have gained 12.6% in the past 30 days. Beazer Homes has a Zacks Rank #1 (Strong Buy).

TRI Pointe Group, Inc. is involved in the design, construction and sale of single-family homes. TPH’s operating portfolio includes Maracay Homes in Arizona; Pardee Homes in California and Nevada; Quadrant Homes in Washington; Trendmaker Homes in Texas; TRI Pointe Homes in California and Colorado; and Winchester Homes in Maryland and Virginia.

TRI Pointe Group’s expected earnings growth rate for the current year is 80.2%. The Zacks Consensus Estimate for current-year earnings has improved 8% over the past 60 days. Shares of TPH have gained 5.1% in the past 30 days. TRI Pointe Group sports a Zacks Rank #1.

Meritage Homes Corporation is one of the leading designers and builders of single-family homes. MTHprimarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury and active-adult buyers in the historically high-growth regions of the United States. Meritage Homes operates as a holding company and has no independent assets or operations.

Meritage Homes Corporation’sexpected earnings growth rate for the current year is 74.6%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 30 days.  Shares of MTH have advanced 12.9% in the past 30 days. Meritage Homes Corporation has a Zacks Rank #2.

Toll Brothers Inc. builds single-family detached and attached home communities; master-planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania, and South Carolina. Toll Brothers offers homes under two segments, namely Traditional Home Building Product and City Living.

Toll Brothers’expected earnings growth rate for the current year is 80.6%. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the past 60 days. Shares of TOL have gained 8.1% in the past 30 days. Toll Brothers has a Zacks Rank #2.