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Zacks Industry Outlook Howard Hughes, Green Brick Partners and Forestar
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For Immediate Release
Chicago, IL – July 15, 2024 – Today, Zacks Equity Research discusses Howard Hughes Holdings Inc. (HHH - Free Report) , Green Brick Partners, Inc. (GRBK - Free Report) and Forestar Group Inc. (FOR - Free Report) .
The Zacks Real Estate – Development industry participants are likely to counter challenges due to the high interest rate environment, with investors continuing to delay the timeline of their transactions in anticipation of better price discovery. Supply-chain constraints, macroeconomic uncertainty and geopolitical tensions are projected to inflate material expenses, keeping prices of real estate high. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the near future.
However, a slowdown in the pace of new deliveries and recovery in demand for certain real-estate categories are likely to provide the industry some support, placing players like Howard Hughes Holdings Inc., Green Brick Partners, Inc. and Forestar Group Inc. well for growth.
About the Industry
The Zacks Real Estate – Development industry comprises companies that are mainly engaged in owning, developing and managing a variety of real estate properties, including commercial, residential and mixed-use parcels. While some developers undertake construction on their land holdings to eventually sell the properties to homebuilders, retaining the same for conducting operations is also a common practice.
Some industry participants actively undertake strategic activities, such as infrastructure improvement, along with land planning and development to boost economic development, attract quality job creators and diversify the regions in which the firms operate. These firms provide real estate leasing, stewardship, underwriting, planning and entitlement services. Real estate development companies are chiefly classified as financial ones, not construction firms.
What's Shaping the Future of the Real Estate Development Industry?
High Interest Rates Continue to Affect Sentiment: Buyer sentiment is currently subdued due to high interest rates. While some investors are attempting to leverage current market dynamics, many are exercising caution, resulting in transaction delays and lower deal volumes. Although some relief from the Federal Reserve might be on the horizon, the timing as well as extent of such measures remain uncertain. Therefore, with skepticism surrounding the timing of rate cuts, these market conditions are anticipated to persist. Consequently, a significant increase in commercial real estate investment activity seems unlikely in the near future.
Supply-Chain Issues & High Material Costs Linger: Macroeconomic uncertainty and geopolitical unrest have repeatedly disrupted the supply chain at various stages in recent years. Combined with high interest rates, these factors have increased the cost of raw materials. Additionally, high mortgage rates have made it difficult for many buyers to afford new homes at elevated prices. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the near future.
Constrained Supply Help Industry Fundamentals: Disruptions in the supply chain, coupled with high interest rates, have not only pushed up the cost of raw materials but also slowed down the pace of new construction deliveries. Particularly, the residential market is grappling with a substantial shortage of new homes, stemming from more than a decade of under-building compared with population growth.
Additionally, the existing home supply is constrained as current homeowners are hesitant to sell and reluctant to give up their low-interest-rate mortgages. This supply shortage is likely to play a role in maintaining favorable industry fundamentals. Also, the desire for homeownership has been driving demand for the U.S. housing space. Moreover, demand for certain commercial real estate categories remains healthy and is raising hopes and prospects for investors.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Real Estate Development industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #162, which places it in the bottom 35% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. For 2024 and 2025, the industry’s earnings estimates have decreased by 6.8% and 28.5%, respectively, since January 2024.
However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms the Sector and the S&P 500
The Zacks Real Estate – Development industry has underperformed the S&P 500 composite and the broader Finance sector over the past year.
The industry has declined 13.3% during this period against the S&P 500 composite’s growth of 27.4%. The broader Finance sector has increased 20.5%.
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing real estate development companies, we see that the industry is currently trading at 5.6X compared with the S&P 500’s 22.14X. The industry is trading below the Finance sector’s forward 12-month P/E of 14.59X.
Over the past five years, the industry has traded as high as 29.94X and as low as 3.73X, with a median of 8.51X.
3 Real Estate Development Stocks to Consider
Howard Hughes Holdings: The Woodlands, TX-based company is engaged in the ownership, management and development of commercial, residential and mixed-use real estate throughout the United States.
Its assets include a portfolio of master-planned communities, other operating properties and development opportunities.
With its expertise in the real estate sector, the company is well-poised to bank on the favorable demand in the residential and commercial real estate markets. The company’s 2024 revenues are projected to be up 62.2%.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for the 2024 EPS has been revised 10.1% upward over the past week. The stock has appreciated 13.3% in the past three months.
Green Brick Partners, Inc.: This is a publicly traded, diversified homebuilding and land development company operating in Texas, Georgia and Florida.
It is engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales for its residential neighborhoods and master-planned communities.
GRBK benefits from several strategic advantages, such as a significant presence in the U.S. markets with considerable job growth and favorable demographics.
Its advantages extend to superior land and lot reserves and a diverse range of product offerings, positioning it favorably for expansion. Specifically, GRBK's superior infill and infill-adjacent locations in high-growth markets are expected to yield continued benefits amid the strong demand in its markets.
GRBK currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 EPS of $7.46 suggests a 21.5% increase year over year. Also, the Zacks Consensus Estimate for 2025 EPS of $8.27 indicates a 10.9% rise year over year. The stock has appreciated 13.3% in the past three months.
Forestar Group Inc.: This is a majority-owned subsidiary of D.R. Horton, which focuses mainly on investing in land acquisition and development to sell finished single-family residential lots to local, regional and national homebuilders.
Forestar Group is likely to benefit from the healthy demand for residential lots, particularly at affordable price points. However, the supply of vacant developed lots, particularly in the affordable segment, remains limited across much of the country.
Despite high mortgage rates and inflationary pressures, there is solid demand for new construction, supported by favorable demographics. The availability of new and existing homes at affordable prices, as well as resale properties, is still restricted.
Forestar Group currently has a Zacks Rank #3. The Zacks Consensus Estimate for its fiscal 2024 EPS of $3.87 suggests a 16.2% increase year over year. Also, the Zacks Consensus Estimate for fiscal 2025 EPS of $4.19 calls for an 8.3% rise year over year. The company’s shares have risen 3.4% in the past month.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Howard Hughes, Green Brick Partners and Forestar
For Immediate Release
Chicago, IL – July 15, 2024 – Today, Zacks Equity Research discusses Howard Hughes Holdings Inc. (HHH - Free Report) , Green Brick Partners, Inc. (GRBK - Free Report) and Forestar Group Inc. (FOR - Free Report) .
Industry: Real Estate
Link: https://www.zacks.com/commentary/2300526/3-real-estate-development-stocks-to-consider-despite-industry-woes
The Zacks Real Estate – Development industry participants are likely to counter challenges due to the high interest rate environment, with investors continuing to delay the timeline of their transactions in anticipation of better price discovery. Supply-chain constraints, macroeconomic uncertainty and geopolitical tensions are projected to inflate material expenses, keeping prices of real estate high. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the near future.
However, a slowdown in the pace of new deliveries and recovery in demand for certain real-estate categories are likely to provide the industry some support, placing players like Howard Hughes Holdings Inc., Green Brick Partners, Inc. and Forestar Group Inc. well for growth.
About the Industry
The Zacks Real Estate – Development industry comprises companies that are mainly engaged in owning, developing and managing a variety of real estate properties, including commercial, residential and mixed-use parcels. While some developers undertake construction on their land holdings to eventually sell the properties to homebuilders, retaining the same for conducting operations is also a common practice.
Some industry participants actively undertake strategic activities, such as infrastructure improvement, along with land planning and development to boost economic development, attract quality job creators and diversify the regions in which the firms operate. These firms provide real estate leasing, stewardship, underwriting, planning and entitlement services. Real estate development companies are chiefly classified as financial ones, not construction firms.
What's Shaping the Future of the Real Estate Development Industry?
High Interest Rates Continue to Affect Sentiment: Buyer sentiment is currently subdued due to high interest rates. While some investors are attempting to leverage current market dynamics, many are exercising caution, resulting in transaction delays and lower deal volumes. Although some relief from the Federal Reserve might be on the horizon, the timing as well as extent of such measures remain uncertain. Therefore, with skepticism surrounding the timing of rate cuts, these market conditions are anticipated to persist. Consequently, a significant increase in commercial real estate investment activity seems unlikely in the near future.
Supply-Chain Issues & High Material Costs Linger: Macroeconomic uncertainty and geopolitical unrest have repeatedly disrupted the supply chain at various stages in recent years. Combined with high interest rates, these factors have increased the cost of raw materials. Additionally, high mortgage rates have made it difficult for many buyers to afford new homes at elevated prices. Until macroeconomic conditions improve, sales activity is likely to remain subdued in the near future.
Constrained Supply Help Industry Fundamentals: Disruptions in the supply chain, coupled with high interest rates, have not only pushed up the cost of raw materials but also slowed down the pace of new construction deliveries. Particularly, the residential market is grappling with a substantial shortage of new homes, stemming from more than a decade of under-building compared with population growth.
Additionally, the existing home supply is constrained as current homeowners are hesitant to sell and reluctant to give up their low-interest-rate mortgages. This supply shortage is likely to play a role in maintaining favorable industry fundamentals. Also, the desire for homeownership has been driving demand for the U.S. housing space. Moreover, demand for certain commercial real estate categories remains healthy and is raising hopes and prospects for investors.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Real Estate Development industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #162, which places it in the bottom 35% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. For 2024 and 2025, the industry’s earnings estimates have decreased by 6.8% and 28.5%, respectively, since January 2024.
However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms the Sector and the S&P 500
The Zacks Real Estate – Development industry has underperformed the S&P 500 composite and the broader Finance sector over the past year.
The industry has declined 13.3% during this period against the S&P 500 composite’s growth of 27.4%. The broader Finance sector has increased 20.5%.
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing real estate development companies, we see that the industry is currently trading at 5.6X compared with the S&P 500’s 22.14X. The industry is trading below the Finance sector’s forward 12-month P/E of 14.59X.
Over the past five years, the industry has traded as high as 29.94X and as low as 3.73X, with a median of 8.51X.
3 Real Estate Development Stocks to Consider
Howard Hughes Holdings: The Woodlands, TX-based company is engaged in the ownership, management and development of commercial, residential and mixed-use real estate throughout the United States.
Its assets include a portfolio of master-planned communities, other operating properties and development opportunities.
With its expertise in the real estate sector, the company is well-poised to bank on the favorable demand in the residential and commercial real estate markets. The company’s 2024 revenues are projected to be up 62.2%.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for the 2024 EPS has been revised 10.1% upward over the past week. The stock has appreciated 13.3% in the past three months.
Green Brick Partners, Inc.: This is a publicly traded, diversified homebuilding and land development company operating in Texas, Georgia and Florida.
It is engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales for its residential neighborhoods and master-planned communities.
GRBK benefits from several strategic advantages, such as a significant presence in the U.S. markets with considerable job growth and favorable demographics.
Its advantages extend to superior land and lot reserves and a diverse range of product offerings, positioning it favorably for expansion. Specifically, GRBK's superior infill and infill-adjacent locations in high-growth markets are expected to yield continued benefits amid the strong demand in its markets.
GRBK currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 EPS of $7.46 suggests a 21.5% increase year over year. Also, the Zacks Consensus Estimate for 2025 EPS of $8.27 indicates a 10.9% rise year over year. The stock has appreciated 13.3% in the past three months.
Forestar Group Inc.: This is a majority-owned subsidiary of D.R. Horton, which focuses mainly on investing in land acquisition and development to sell finished single-family residential lots to local, regional and national homebuilders.
Forestar Group is likely to benefit from the healthy demand for residential lots, particularly at affordable price points. However, the supply of vacant developed lots, particularly in the affordable segment, remains limited across much of the country.
Despite high mortgage rates and inflationary pressures, there is solid demand for new construction, supported by favorable demographics. The availability of new and existing homes at affordable prices, as well as resale properties, is still restricted.
Forestar Group currently has a Zacks Rank #3. The Zacks Consensus Estimate for its fiscal 2024 EPS of $3.87 suggests a 16.2% increase year over year. Also, the Zacks Consensus Estimate for fiscal 2025 EPS of $4.19 calls for an 8.3% rise year over year. The company’s shares have risen 3.4% in the past month.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.