Home, Sweet Profits

According to the National Association of Realtors, existing home sales recently surged to their highest levels in more than a decade. At the same time, the U.S. Census Bureau continues to report strong residential construction data, with building permits and housing starts consistently above the 1-million-unit mark for more than two years now. Yet as healthy as the housing market has become in recent years, lowcost housing has remained a challenge. After more than a decade of struggles resulting from coming of age during the worst financial crisis in nearly a century, millennials are making money and starting families. They’re ready to buy homes, but there just isn’t enough inventory to meet the demand. Meritage Homes (NYSE: MTH) is taking advantage of this situation, dedicating roughly 70 percent of its recent land purchases to entry-level houses. It’s paying off, driving up profit 15 percent last quarter. (It helps that low-cost new houses often generate higher profit margins than bigger, more custombuilt homes.) Since this is currently the leastserved part of the market and also the one with the most near-term growth potential, it’s a great time to be building entry-level houses. Well positioned for further growth and with a price-to-earnings (P/E) ratio recently near 14, Meritage Homes is cheaper than most of its peers. (The Motley Fool has recommended Meritage Homes.)