We recently published a list of 10 Best Residential Real Estate Stocks To Buy. In this article, we are going to take a look at where Meritage Homes Corporation (NYSE:MTH) stands against other best residential real estate stocks to buy.
Home Buyers Have More Bargaining Power than Sellers, Says Economist
The rate hikes which started in March 2022 as a battle against inflation are coming to an end as the Federal Reserve finally decided to cut rates for the first time since 2020. The rate cuts were kicked off with a half-percentage point reduction on September 18. This long-awaited move lowered rates to about 4.875%, at the midpoint. With an optimistic view in mind about inflation cooling off, the big rate cut will be catering to the employment slowdown. The news just doesn’t end here since the officials have pointed to another half-point reduction before the year’s end.
For the housing market, the big rate cut could be taken as a signal from the Fed to reverse the mortgage lock-in effect but the extent of easing matters. While an aggressive reduction in rates will reduce financing costs, create an inventory of existing homes, and reduce pressure on home prices, a gradual reduction won’t be of much value for the homeowners who are holding on to their early-pandemic low mortgage rates. The anticipation of a rate cut at the September Fed meeting has brought down mortgage rates to as low as their lowest since February 2023. However, the dropping mortgage rates are a double-edged sword as they could potentially raise the demand so much thereby making home buying even harder.
In an interview with CNBC, Senior Economist Orphe Divounguy from Zillow emphasized the impact of rate cuts on housing affordability. Although affordability remains a challenge, the market is improving. In his opinion, the best time to act for home buyers is right now as the current scenario offers them a perfect entry point with more options and bargaining power being somewhat shifted from the sellers to the buyers. The number of active listings on the real estate platform has gone up by 22% since last year. Although short-term rates are expected to decline, longer-term rates like mortgage rates could remain at the current level. He expects more buyers than sellers in the market with improving affordability. Sellers will also be in good shape as well-priced and well-marketed homes are selling in just 20 days, according to company data.
With that being said, let’s move to the 10 best residential real estate stocks to buy.
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An employee of the company pointing out the features of a house to a first-time homebuyer.
Meritage Homes Corporation (NYSE:MTH)
Number of Hedge Fund Holders: 33
Meritage Homes Corporation (NYSE:MTH) is the 5th largest American homebuilder based on the homes closed in the year 2023. The home builder provides energy-efficient and affordable entry-level and first-move-up homes. It operates in multiple states including Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.
Meritage has successfully delivered 185,000 homes during its 38 years in business. The firm leads the way in energy-efficient homes. What sets Meritage apart from other builders who install slapped-on features is that the firm thoughtfully engineers every component starting from the foundation. The home builder opens the door to a life built better since the features in every Meritage home work seamlessly together to deliver energy savings while the pricing stays transparent.
Meritage outperformed during the fiscal second quarter with home closing revenue climbing 10% year-over-year to $1.7 billion. The firm also increased its community count sequentially from the first quarter and accomplished an average absorption pace of 4.5 per month which led to the highest second quarter orders volume of 3,799 homes.
The firm’s focus on affordable move-in ready inventory enables it to accelerate its growth amid an underbuilt supply of homes. With strong order growth across all markets including those with increasing resale inventory, the future outlook remains optimistic. To further boost growth, the home builder is investing in land acquisition and development. Land acquisition and development spending was $631.1 million for the second quarter of 2024 as compared to $408.5 million for the prior-year period. Simultaneously, over 8,700 net new lots were added in the quarter which represents an estimated 63 future communities.
The quick turning move-in ready homes competitive advantage, a strong balance sheet, momentum in land and development investment, and robust delivery of results have positioned Meritage Homes Corporation (NYSE:MTH) for a growing market share.
Overall, MTH ranks 9th on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of MTH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MTH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.