2 Real Estate Development Stocks to Consider Despite Industry Woes

The Zacks Real Estate – Development industry faces headwinds from geopolitical instability and macroeconomic uncertainty, potentially leading to increased material costs and subdued sales activity; the industry has underperformed the S&P 500 and broader finance sector over the past year, with earnings estimates moving 39.4% south since June 2024. However, healthy demand in specific real estate categories and constrained supply may support the industry, positioning companies like Landsea Homes (LSEA) and Howard Hughes Holdings (HHH) for growth, despite their Zacks Rank #3 (Hold).

Analysis

The Zacks Real Estate – Development industry faces significant near-term headwinds stemming from geopolitical instability and macroeconomic uncertainty, which are anticipated to elevate material expenses and maintain high real estate prices, thereby subduing sales activity. This challenging outlook is reflected in the industry's Zacks Industry Rank of #179 (bottom 27%) and a substantial 39.4% downward revision in aggregate 2025 earnings estimates since June 2024. Over the past year, the industry has underperformed, declining 6.8% against the S&P 500's 12.3% growth and the broader Finance sector's 22.5% increase. Currently, the industry trades at a forward 12-month P/E of 7.76X, considerably below the S&P 500 (22.02X) and the Finance sector (16.20X), and close to its five-year median of 6.94X. Despite these overarching concerns, specific segments exhibit resilience; healthy demand persists in retail, industrial, logistics, and office real estate, driven by factors like resurgent in-person shopping and e-commerce growth. Furthermore, constrained new construction deliveries, particularly in residential and retail, due to elevated interest rates and a decade of under-building relative to population growth, are supporting market fundamentals. Within this mixed environment, Howard Hughes Holdings Inc. (HHH) and Landsea Homes Corporation (LSEA) are highlighted as companies positioned for growth. LSEA, focusing on entry-level homes and new markets, has seen its stock gain 54% in the past three months, with its 2025 EPS estimate stable at $1.05. Conversely, HHH, leveraging its expertise in diverse real estate assets, experienced a 55.4% upward revision in its 2025 EPS estimate to $1.43 over the past two months, though its shares declined 3.2% in the past three months. Both companies carry a Zacks Rank #3 (Hold).

Key Decisions for Investors

• Given the prevailing macroeconomic uncertainties and negative industry-wide earnings revisions, investors should exercise caution and adopt a highly selective approach towards the real estate development sector.
• Consider focusing on companies like Landsea Homes (LSEA) and Howard Hughes Holdings (HHH) that demonstrate specific growth drivers, such as strategic market positioning or strong individual earnings outlooks, despite broader industry challenges.
• Monitor key indicators including interest rate movements, inflation trends, material costs, and housing supply levels, as these will significantly influence companies' profitability and transaction volumes.
• Evaluate individual company performance and analyst sentiment, noting the positive per-ticker sentiment for HHH and LSEA, which contrasts with the overall cautious industry tone, before making investment decisions.