Last week, I looked at stocks that could be worth buying if the Federal Reserve raises interest rates in June. Since then, Fed Chair Janet Yellen confirmed that a rate hike is likely this summer, either in June or July. Fed economists’ view that the economy is picking up steam got some validation this week when U.S. consumer spending rose 1% in April, the largest percentage in more than six years. Personal income was up 0.4% and wages rose 0.5% — both signs that American households will continue to have more money to spend in the coming months.

As I’ve written in recent months, consumer durable stocks should benefit from this trend. Another area that should thrive in a low-unemployment, rising-wage environment is the housing market. Indeed, home sales have shown signs of picking up in recent months as the sector’s long, slow recovery from the financial crisis continues.

#-ad_banner-#Stocks associated with home sales, such as homebuilders, should be hurt by rising mortgage rates, but often are helped in the short run, as home buyers move to lock in existing rates before the Fed decides on additional rate hikes. That’s especially likely in the current environment, as consumers with cash to spend are finding reasonably priced homes in many markets. Housing experts also point to the large Millennial generation, the bulk of which is now shifting from young adulthood into parenthood — generally associated with a shift from renting to owning a home. In fact, U.S. new-home sales just posted their best month since January 2008 — a sign that the housing market is finally getting healthy.

Investors have taken notice. The S&P Homebuilders Select Industry Index is up about 23% since early February and about 5% over the past two weeks. But shares of the leading homebuilders remain relatively attractively priced. Here are two homebuilding stocks worth considering today:

D.R. Horton (NYSE: DHI), based in Texas, is the largest U.S. homebuilder, with operations in 79 markets in 26 states and more than 37,000 homes sold in the past 12 months. The company’s brands include D.R. Horton, Express Homes and Emerald Homes. The company also operates mortgage finance and title subsidiaries. It is active in Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Illinois, Louisiana, Maryland, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia and Washington.

Horton is known for its focus on entry-level homes, though its homes range in price to as high as $1 million. About half its homes sell for less than $250,000, making the company a prime beneficiary of the Millennial transition from renting to buying. The company’s land acquisition and management strategy has been fairly conservative, leaving it leveraged for double digit earnings growth in the coming years if home buying rates continue to rise. Horton’s profit margins have risen in recent quarters thanks to cost controls, declining inventories and better returns on invested capital.

At recent prices, Horton trades at 12.9 times analysts’ consensus estimate for 2016 earnings per share, which remains attractive given its growth prospects in the coming years.

Lennar (NYSE: LEN) is the second-largest homebuilder in the United States, specializing in moderately priced single-family homes in more than 40 metropolitan areas. It is based in Florida and active in Arizona, California, Colorado, Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas and Virginia. The company also has financial services and asset management units.

After suffering through the financial crisis and real estate recession, Lennar has spent the past few years reducing debt, cutting costs and allowing its land assets decline to meet lower production of homes. It’s now in good shape to benefit from the coming growth cycle in home sales. And as a producer of houses that are priced in the average to above-average range (but not luxury), Lennar is less dependent on strong economic growth than some of its competitors.

At recent prices, Lennar trades at 11.8 times analysts’ consensus estimate for 2016 earnings per share.
 
Risks To Consider: Homebuilder stocks have rallied in recent months, so a pause wouldn’t be surprising. These companies are vulnerable to economic weakness, much higher than expected interest rates and unexpected shocks such as a terrorist attack or spike in oil prices.
    
Action To Take: Buy D.R. Horton under $33.50 and Lennar under $47.

Editor’s Note: If pulling down a yield of 10% a year sounds good — before capital gains — you need to see this. You’ll find stocks paying 15.1%… high-yielding REITs, trusts, partnerships and ETFs. (These cash cows are also posting capital gains as high as +368% for us. I explain that part here.)