Some experts argue that this is a good time to buy shares in UK housebuilding companies, even though their short-term prospects look bleak.
- Market Resilience: Despite challenging times, top housebuilding companies like Taylor Wimpey and Bellway have reported ‘resilient’ performances.
- Challenges: Housebuilders are facing significant challenges:
- Economic: Higher living and borrowing costs. The average five-year mortgage rate has jumped to 6.06% from 3.81% in the previous year.
- Political: The government’s aim to build 300,000 homes annually in England was discarded in 2022. Also, the Help to Buy scheme was stopped in March this year.
- New term: ‘Guppies’ are young professionals who have “given up on property ownership” due to these economic challenges.
- Looking Beyond the Present: Investing in housebuilder shares now involves looking past their current struggles, betting on their resilience, cash reserves, and land assets.
- Supply Deficit: The UK has a massive shortage of over 1 million homes. London alone needs about 90,000 new homes priced below £1m annually, but only 30,000 have been provided since 2020.
- Better Prepared for Downturns: Unlike the global financial crisis of 2007-2008 when many housebuilders were vulnerable, they are now better prepared for economic slowdowns. They have stronger balance sheets and have become more cautious about land investments.
- Stock Recommendations:
- Positive Views: Companies like Taylor Wimpey, Bellway, Redrow, and Persimmon are favored by investment funds like Rathbone Income. Particularly, Taylor Wimpey is highlighted for its solid net cash position and low gearing ratio.
- Cautions: Persimmon is seen as dependent on first-time buyers, and its share price has dropped by 7%. Also, Vistry is recommended to avoid due to its smaller cash buffer.
- Dividend Attractiveness: Despite the market’s volatility, housebuilder stocks are offering high dividend yields – Berkeley at 5.93% and Taylor Wimpey at 8%.
- Sector Predictions: Some analysts believe the housebuilding sector’s output might not get back to its 2021 peak until 2026.
In Layman’s Terms: Housebuilding companies are facing tough times due to increased costs and political decisions. However, they have shown they can handle challenges and are in a better position now than during the 2007-2008 financial crisis. There’s a massive need for new homes in the UK, especially in London. While investing in these companies might seem risky now, they have assets and plans that could see them through the tough times. Some companies are in a stronger position than others, so it’s essential to choose wisely if considering investing. They also offer good dividends for shareholders, which can be a bonus. But, remember, investing always comes with its ups and downs.