During the three days to 2 July, the Taylor Wimpey (LSE:TW.) share price has tanked nearly 8%. Given that some momentum appeared to be building over the past weeks, this is particularly disappointing for shareholders.
On 9 April, the stock was changing hands for 102p. Over the course of June, the share price rallied above 122p. Today (2 July), I could buy one for around 113p.
Of course, Foolish investors know that short-term price volatility is common in the world of stocks and shares. And it’s important not to make any hasty decisions on the basis of a few days’ trading. However, I think this week’s movement — particularly after a period of steady progress — warrants further investigation.
Signs of a cooling market?
The share price wobble appears to coincide with the publication of the latest house price survey from Nationwide. This revealed a 0.8% fall in the average price to £271,619. This is the biggest monthly fall for more than two years.
But the building society is optimistic. It says: “Underlying conditions for potential homebuyers [remain] supportive.” It expects activity to pick up over the summer.
Personally, I’m not too concerned. I think there was a rush to buy properties ahead of stamp duty changes that took effect from April. Lending data from the Bank of England supports this view – it shows a large drop in new mortgages during the month, following a big rise in March.
I think the ratio of buyers to sellers will quickly revert back to trend. Of course, we will only know for sure when this ‘wrinkle’ has worked itself out.
Another factor behind the share price wobble could be a sharp rise in gilt rates following speculation about the Chancellor’s future.
Looking to the future
Whatever the cause, I remain optimistic about the medium-term prospects for the UK housing market. And I think all of the FTSE 100’s housebuilders will see their share prices rebound over the next few months.
Fundamentally, there’s a shortage of housing and yet the population continues to rise. The government’s emphasis on planning reform and building more affordable housing should also help the sector. And Taylor Wimpey is in a good position to capitalise. It has a small amount of debt on its balance sheet, an order book of £2.3bn, and over 78,000 plots on which to build.
However — although the housing market is cyclical — there are never any guarantees that it will recover.
But even if it takes longer than expected for the market to pick up, the group’s shareholders can take comfort from the stock’s impressive 8.3% yield. This is the third-highest on the FTSE 100. Again, there are no certainties when it comes to dividends but the housebuilder has a good track record of making generous payouts.
Even so, I don’t want to buy any shares. That’s because I already have a stake in one of its rivals, Persimmon. It wouldn’t be sensible to have another UK housebuilder in my portfolio. However, those investors who don’t have exposure to the sector could consider adding Taylor Wimpey to theirs. It has a higher average selling price and a marginally better gross profit margin than its smaller rival. It also offers a better yield.
