The Taylor Wimpey (LSE: TW.) share price has defied logic for me. It’s gained 40% since late October, sure, but it’s still down 11% in the past five years.
And that’s one of the top housebuilders in a country with a chronic housing shortage and a track record of strong long-term demand.
So when we see short-term blips, like we’ve just experienced on the back of high mortgage rates, it’s time to buy the shares cheaply, isn’t it? And not dump them, like the market did.
Rises slowed
The share price rises of late 2023 have slowed in 2024, and it looks like it’s down to one key thing. And that’s interest rates.
In its 1 February meeting, the Bank of England (BoE) kept the base rate unchanged at 5.25%. The bank’s latest inflation outlook suggests it should drop quickly in the coming months, but could rise again towards the end of the year.
That, for me, is the biggest threat to the Taylor Wimpey share price right now, and it’s two-pronged. The longer the BoE waits to cut rates, the weaker the outlook for the 2024 dividend. And if we see inflation pick up again later, interest rate fears could scare investors away again.
It doesn’t matter
But here’s where the Taylor Wimpey share price and logic part company, at least as far as I see it.
Will the BoE cut interest rates some time in the near future? Yes, unless anything drastic goes wrong, almost certainly. And when that happens, will it attract investors back to Taylor Wimpey and the other FTSE housebuilders?
I’d say that’s very likely, if not almost certain. So why wait?
Long-term cash
If we’re convinced Taylor Wimpey will get back to long-term growth when these near certainties start to happen later this year, why not buy now, before the shares rise any further?
What happened to the builders in 2023 is just the kind of thing I dream of as an investor. I see a sector that has great long-term cash prospects, and it’s temporarily in trouble.
The big players in the business aren’t in any real danger, and are well insulated against these downturns that we get from time to time. Oh, and it’s a business that it’s very hard for new competitors to get into in any sizeable way.
Buy now?
Doesn’t that just make the buy button flash in our minds? It does with me. I didn’t buy any Taylor Wimpey shares, but I have bought other housebuilders. And I can see myself buying more in 2024, when I next have the money to invest.
This sector really is very sensitive to the economy and to interest rates, and I can see why the volatility might put people off. And I expect more volatility in 2024.
But Taylor Wimpey has to be a stock for long-term investors to consider buying on the dips, hasn’t it? I can see more gains in the year ahead.
