3 charts that suggest now could be the time to consider FTSE housebuilders!

Our writer’s been looking at recent data that suggests shares in the FTSE’s housebuilders could soon be on their way to recovery.

| More on:

Image source: Redrow plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The downturn in the UK housing market has badly affected buyers and sellers alike. Not surprisingly, it’s also taken its toll on the share prices of those FTSE stocks with exposure to the sector.

As an example, take the three largest in the FTSE 100. Since May 2019, Persimmon (LSE:PSN), Taylor Wimpey and Barratt Developments have fallen 40%, 26% and 22% respectively.

But there are some encouraging signs that things are starting to pick up.

1. Mortgage approvals

In February, mortgage approvals were at their highest level for 18 months, according to data from the Bank of England. More encouragingly, as the chart below illustrates, they’ve now risen for six consecutive months.

At 61,325, they’re still 27.5% below their five-year monthly high of April 2021, but I think the recent month-on-month improvement shows confidence is slowly returning to the property market.

Source: Bank of England

2. Interest rates

The latest yield curve for government bonds (see below) shows a steady decline for all redemption dates. This is driven by a market perception that interest rates are likely to fall from their current levels.

Gilts are important because they are the benchmark against which mortgage providers price their products. Falling yields suggests that home loans are likely to become cheaper. This should help boost the demand for new houses.

Source: Bank of England

3. Incomes

The chart below shows how real (post-inflation) wages are starting to grow again.

This should make mortgages become more affordable and, for those looking to get on the property ladder for the first time, encourage them to buy.

Source: Office of National Statistics

One possible beneficiary

If I’m right that the green shoots of a recovery are starting to appear, then one company that should benefit is Persimmon. Indeed, its April trading update included some positive signs.

Net private sales per selling outlet were up 6% in the first quarter of 2024, compared to the same period in 2023. There are plans in place to open more sales offices which reflects the chief executive’s view that “trading over recent weeks has been encouraging with robust visitor numbers and enquires, giving us confidence for the remainder of the year”.

At 31 March, its order book was £1.14bn, compared to £970m a year earlier. The average selling price of these forward sales was 6% higher than at the start of the year.

The company’s operating margin is also expected to remain unchanged in 2024. This is particularly good news as building cost inflation was the principal reason behind the company’s operating margin falling from 27.4% in 2022 to 14% in 2023.

Of course, there’s no guarantee that the encouraging trends identified in mortgage approvals, interest rates and incomes will continue. And even if Persimmon builds 10,500 homes this year — at the top end of its expected range — this will still be 29% lower than its 2019-2022 average of 14,712.

But with its strong balance sheet, over 80,000 plots on which to build and a steadily increasing order book, I think the company’s well placed to benefit from the housing market recovery I’m anticipating.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Persimmon Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »