Interactive Investor

Housebuilder shares to buy as price slump fears recede

2nd May 2023 13:38

by Graeme Evans from interactive investor

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New data has soothed concerns about a severe drop in house prices, while politicians consider how to help first-time buyers. One analyst reveals which housebuilder stocks they would buy.

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Tailwinds for shares in Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.) and other builders continue to blow after more tentative signs of recovery emerged from the property market today.

The sector has rebounded by more than a fifth on average since October’s lows, with the latest flurry of buying coming after the Nationwide building society reported that house prices lifted by 0.5% in April to end a run of seven consecutive falls.

Further encouragement for the sector came yesterday when the Times newspaper reported that Downing Street is looking at proposals to help renters who have been unable to get on the housing ladder due to high prices and rising interest rates.

The report said the latest first-time buyer support scheme could form part of Chancellor Jeremy Hunt’s autumn statement. In addition, Labour has pledged support by reviving targets to ensure that the private sector builds at least 300,000 homes a year.

The developments come against a backdrop of resilient trading after Persimmon and Taylor Wimpey last week reported improved year-to-date private sales rates in line with expectations. Persimmon added that its forward sales position of £1.7 billion was down 30% on a year earlier but higher than the £1 billion at the start of 2023.

The pair also said annualised build-cost inflation remains high but that levels are showing signs of moderating from 9%-10% reported by the industry in March.

Barratt Developments (LSE:BDEV), the third of the FTSE 100-listed players, posts an update tomorrow.

The company is one of five stocks rated at ‘buy’ by analysts at UBS, with the others being Bellway (LSE:BWY), Berkeley Group Holdings (The) (LSE:BKG), Redrow (LSE:RDW) and Taylor Wimpey, as the Swiss bank becomes more optimistic that a house price correction of more than 10% is now looking less likely.

There was encouragement on this front today when Nationwide reported tentative signs of recovery to leave prices 4% below their August peak.

There have been signs of a recent pick-up in mortgage activity, although the lender believes any upturn is likely to remain fairly pedestrian as it will take time for household finances to recover from their squeeze from cost-of-living pressures.

Mortgage interest rates have fallen from the highs seen in the wake of the mini-Budget last year, but are still more than double the level prevailing a year ago and set to rise further after the Bank of England’s next meeting on 11 May.

However, Nationwide added: “If gains in nominal incomes remain solid (wage growth has been running at above 7% in the private sector), this, together with weak or declining house prices, will help improve housing affordability over time, especially if mortgage rates continue to trend lower.”

As more becomes known about the likely shape of the housing market downturn, shares in Taylor Wimpey and Barratt Development have risen by around 25% in 2023 to their highest levels in a year.

Persimmon has been one of the laggards, however, with shares up by about 10% after today’s big jump. They are still below where they were prior to annual results on 1 March, when management signalled the intention to build 40% fewer homes in 2023 and scaled back the 235p a share annual dividend with plans to distribute 60p a share on Friday.

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