Pending home sales rebounded in October after a decline in the prior month. Accelerating rents and the expected rise in mortgage rates have been aiding the U.S. housing industry to create pent-up demand. The results even outpaced analysts’ expectations by 6.8%.

The Pending Home Sales Index — a forward-looking indicator based on contract signings — increased 7.5% to 125.2 in October from September, according to the latest report from the National Association of Realtors or NARs. Each of the four major U.S. regions registered month-over-month gains in contract activity. The index, however, declined 1.4% year over year.

NAR chief economist, Lawrence Yun, said, “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Sales jumped the most in Midwest and South. In the Midwest, signings increased 11.8% to 124.6 while the South registered an 8% sales increase in October from September. Meanwhile, in the Northeast and the West, pending sales rose 6.9% and 2.1% month over month, respectively.

This has put the spotlight on housing and housing-dependent stocks with a favorable Zacks Rank like Meritage Homes Corporation (MTH Quick QuoteMTH - Free Report) , Beazer Homes USA, Inc. (BZH Quick QuoteBZH - Free Report) , Ethan Allen Interiors Inc. (ETD Quick QuoteETD - Free Report) , Builders FirstSource, Inc. (BLDR Quick QuoteBLDR - Free Report) , Williams-Sonoma, Inc. (WSM Quick QuoteWSM - Free Report) .

A Snapshot of Other October Sales Data

The most recent data from NARs showed that existing home sales rose 0.8% in October to a 6.34 million sales pace from September. Despite the October rise, sales are now 5.8% less than the year-ago level.

Meanwhile, sales of new homes in the United States rose 0.4% last month from September. In fact, sales of new U.S. single-family homes increased for the fourth straight month. However, this is 23.1% below the October 2020 figure.

Although the successful rollout of the COVID-19 vaccinations and the subsequent re-opening of the economy have somewhat cooled off the buying spree of the Americans, NAR expects the homebuilding market to remain robust. Also, Yun forecasts home prices to rise at a milder pace over the next several months and demand to be milder as mortgage rates increase.

Yun further added, "The notable gain in October assures that total existing-home sales in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years."

Given the solid momentum in the housing market, it’s time you add some profitable housing as well as housing-industry-dependent stocks to your portfolio. Although sustained supply-chain disruptions and labor shortages have been taking a toll on the industry, buyers continue to show an appetite for new homes.

Key Picks

Meritage Homes: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes is a major driving factor.

Meritage Homes currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for MTH’s 2021 earnings has moved up 1.9% over the past 30 days. MTH has gained 38.4% year to date (YTD), faring better than the sector’s 24.8% rally. Earnings are expected to grow 74.6% in 2021 and 21.2% for the next. You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA: This Atlanta-based homebuilder continues to gain from strong operational execution and persistent strength in the housing market. BZH recently reported fiscal 2021 results, wherein it generated significant gains in operating margin and adjusted EBITDA, leading to full-year net income being more than double the prior year.

Beazer Homes currently sports a Zacks Rank #1 and the stock has gained 31.6% YTD. Earnings are expected to grow 23.7% in fiscal 2022.

Ethan Allen Interiors: This interior design company has been generating strong sales and increasing profitability buoyed by the high demand for consumers' interest in the home. Also, its vertically integrated structure, with 75% of its products being made in North American manufacturing workshops, has been a major growth driver. This provides a unique opportunity to grow the blend of the personal service of in-house interior designers and the increasing use of technology is a major driving factor.

Ethan Allen currently sports a Zacks Rank #1 and the stock has gained 12.5% YTD. Earnings are expected to grow 30.8% in fiscal 2022.

Builders FirstSource: This supplier of building materials has been gaining from its focus on cost synergies, strategic acquisition and robust demand arising from solid housing activities. BLDR continues to focus on investing in innovations and enhancing digital solutions for customers.

Builders FirstSource currently sports a Zacks Rank #1 and the stock has gained 76.1% YTD. Earnings are expected to grow 173.1% in 2021.

Williams-Sonoma: This multi-channel specialty retailer has been benefiting from solid e-commerce growth, focus on innovation, marketing, and digitalization techniques as well as the transformation of the retail fleet. Notably, e-commerce penetration accounted for more than 67% of total revenues for third-quarter fiscal 2021, buoyed by its in-house tech platform, rapid experimentation program, content-rich online experience and marketing strategies. For fiscal 2021, Williams-Sonoma now expects revenues to witness 22-23% growth versus low high-teens to low-20s improvement expected earlier. It also expects non-GAAP operating margin between 16.9% and 17.1% for the year compared with 16-17% projected earlier.

Williams-Sonoma currently carries a Zacks Rank #2 (Buy) and the stock has gained 102.3% YTD. Earnings are expected to grow 56.6% in fiscal 2021.