After the sharp plunge in October, housing starts rebounded in November while building permits also increased. The robust data clearly suggests expectation of a steady housing recovery in 2016 despite the possibility of mortgage rates rising as a result of the Fed rate hike announced on Wednesday.

Data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau showed that housing starts rose 10.5% to a seasonally adjusted annualized rate of 1.17 million units in the last month from the revised October reading of 1.06 million.

Single-family housing starts rose 7.6% in the month, while multi-family starts jumped 18.1%. Moreover, housing starts went up 16.5% year over year.

The number of building permits — a gauge of future constructions — increased 11% in November from the prior month suggesting that builders expect steady sales. Building permits for single-family and multi-family homes grew 1.1% and 30.8%, respectively. Moreover, permits surged 19.5% year over year.

The robust starts data comes a day after numbers released by the National Association of Home Builders (NAHB) showed that homebuilders’ sentiment index slipped one point to 61 in December. Nonetheless, the index was still above 60 for the 7th month, suggesting that overall housing recovery remains on track.

2015 has generally been a good year for the housing market. After a lull in the U.S. housing space in the first quarter, sales picked up in the ensuing months amid an improving economic environment and a better employment picture. Higher job numbers, a recovering economy, moderating home price gains, rapidly rising household formation, affordable interest/mortgage rates, rising rentals, and a limited supply of inventory –all point to continued strong momentum in 2016.

Heightened home construction activity is also spurring demand for homebuilding materials. This is, in turn, boosting the growth prospects of companies manufacturing these products. Construction material companies like Vulcan Materials Company (VMC - Analyst Report) and Eagle Materials Inc. (EXP - Snapshot Report); building product makers like Masco Corp. (MAS - Analyst Report) and Headwaters Inc. (HW - Snapshot Report); equipment rental companies like United Rentals, Inc. (URI - Snapshot Report); engineering design firms like AECOM (ACM - Analyst Report) and KBR Inc. (KBR - Analyst Report) and security products and solutions provider Allegion plc ALLE are well poised for growth.

3 Construction Stocks for Your Portfolio

We’ve zeroed-in on three stocks in the construction sector sporting a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies are expected to gain from the ongoing housing recovery. We further narrowed down our choices with the help of our new style score system.

Our research shows that stocks carrying a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best investment opportunities in the growth investing space.

Owens Corning (OC - Snapshot Report)

Based in Toledo, OH, this Zacks Rank #2 building materials company has a Growth Score of “A.” Owens Corning has become a market-leading innovator of glass-fiber technology. The company has delivered positive earnings surprises in the past four quarters, with an average beat of 37.07%. The stock has returned nearly 36% year-to-date.

Masco

This Taylor, MI-based building product maker witnessed solid improvement in earnings, revenues and margin in the first three quarters of 2015 driven by improving momentum in the repair/re-modeling and new home construction industry. Strong sales were reported in most of the segments.

The company has delivered an average positive earnings surprise of 10.02% over the past four quarters. The Zacks Rank #2 stock has returned almost 36% year-to-date supported by a Growth Score of “B.” All these point to a bright future for the company.

KBR, Inc.

Based in Houston, this Zacks Rank #2 engineering, construction, and services company currently has a Growth Score of “A.” The company delivered positive earnings surprises in the three quarters of 2015 reported so far – a sharp turnaround from negative surprises in the previous three quarters. The stock has returned roughly 5% year-to-date.

Conclusion

A major cause of concern for homebuilders like PulteGroup, Inc. (PHM - Analyst Report), Lennar Corp. (LEN - Analyst Report), KB Home (KBH - Analyst Report) and D.R. Horton, Inc. (DHI - Analyst Report) is rising land and labor costs as it hurts their margins by limiting pricing power.

The labor market has tightened with limited availability that arrested the rapid growth in housing production. Limited capital for land and land development has left entitled lands in short supply. The shortage is limiting home production, and thereby lowering the inventory of homes, both new and existing. While labor shortages are increasing wages land prices are inflating due to limited availability. Many homebuilders talked about tight land and labor resources resulting in production constraints in the past quarter.

Moreover, with the Fed announcing a hike in the benchmark Federal Funds target rate for the first time since 2006 on Wednesday, mortgage rates will probably rise. High mortgage rates dilute demand for new homes, as mortgage loans become expensive. This lowers a buyer’s purchasing power and hurts volumes, revenues and profits of homebuilders.

Mortgage rates have been at historical lows since 2008. Homebuilders have largely benefited from these low mortgage rates that led to a sharp spike in home buying since 2012.

Nevertheless, in case mortgage rates rise with the interest rate hike, we believe they should still be reasonable, keeping housing affordable. Moreover, the Fed has clearly emphasized that the pace of rate hike will be slow and gradual. Meanwhile the rate hike signals economic strength. Slightly higher rates notwithstanding, an improving economy and job and wage growth should keep the housing market momentum alive in 2016.

So don’t miss out on our three stock choices that are superbly poised to grow.