The housing market was expected to slow down this year. The government stimulus provided during the pandemic gave the sector a boost. But with the withdrawal of support, rising inflation, and uneven economic growth in the past months, it was expected to cool off. I reckon that the sell-off seen in the past few months in FTSE 100 stocks of house builders might have had something to do with this forecast. The market has surprised to the upside, though.
Halifax house price index shows impressive rise
The Halifax house price index recorded a rise in the UK’s house prices for the ninth straight month in March 2022. Moreover, the monthly increase of 1.4% was the biggest in six months. There is more. On an annual basis, house prices rose by 11%, a double-digit increase for the second month in a row.
The risks and the rewards
This is a clear indicator of the continued housing market boom. To me, this also suggests that a sharp slump is unlikely. Of course, there are risks on the horizon. Inflation is probably the biggest foreseeable one among them. Consumer demand can fall as a result, as can companies’ profits. The economy and the stock markets are also likely to be affected.
But how far that threat plays out remains to be seen. For now, the housing market is in a strong place. And in any case, many FTSE 100 stocks are ones I would buy for the long term. It does help, however, if they are expected to rise in the foreseeable future, though. If I do decide to liquidate these investments then, for whatever reason, I can do so in a relatively shorter time frame.
Persimmon could gain from the housing market boom
Now, coming to the stocks that are likely to benefit from this trend. I like the house builder Persimmon. There are others that are quite attractive too, but I like this one enough to hold it in my portfolio. One big reason for this is its double-digit dividend yield of almost 11% right now. A drop in its price in the past few months has made the stock quite affordable in terms of market valuation. Its price-to-earnings (P/E) ratio is at sub-9 times right now, way below the FTSE 100 P/E of 15 times.
Rightmove is a FTSE 100 stock to buy for the long-term
A pricier stock I like is Rightmove. It has a P/E of almost 30 times. But as a rule I like e-commerce stocks, especially since the pandemic has fuelled far greater dependence on this segment. This FTSE 100 stock is a marketplace between house buyers and sellers. It has made some gains over the past year and even pays a dividend. But I think its true potential will only be realised over time. I know this from my own experience as someone who has owned the stock for a couple of years now. But the gains could also come in sooner, if the housing market boom continues.
