The Motley Fool

Is It Time To Dump Housing Stocks?

The UK’s property market is booming, with prices currently rising at more than 10% per year across the country. It seems as if the good times are back for the UK property market. 

However, all this talk of rapidly rising house prices has got some analysts worried. Indeed, it seems as if every day a new report is published warning of a housing bubble, and the risks that rapidly rising house prices could pose to the UK economy. 

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What’s more, the Governor of the Bank of England, Mark Carney recently weighed in on this debate, stating that; 

 “…[the UK] housing market…has deep, deep structural problems…”

But so far, it would appear that the market is not taking any notice of these warnings and house prices continue to charge higher.

The problem is, will the tail start to wag the dog? In other words, will talk of a housing bubble result in a property crash and is it time to get out before this happens?


Looking at the recent results of the UK’s biggest home builders, Persimmon (LSE: PSN)Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV), as well as their outlook for the market, it’s easy to conclude that the good times are back, and they are here to stay. 

Earlier this month, Barrett’s fiscal third-quarter trading update revealed that the company has seen total forward sales jump 46.5% year on year, while net private reservations rose 24.6%.

Additionally, Barrett’s management forecast that the company’s return on capital employed, should hit 18% at some point during the next year or so; a return on capital more indicative of a miner, or oil company than a home builder.

What’s more, Barrett’s smaller peer, Taylor Wimpey has similar lofty aspirations. Taylor’s management has outlined plans to achieve an average operating margin of 20% during the next four years. Further, the company is targeting a return on net assets of 20% per annum and plans to return in excess of £200 million per annum to investors over the next few years.

Talking of returning cash to investors, Persimmon is aiming to distribute £6.20 per share of surplus capital to investors over the next nine and a half years. Persimmon already has a strong net cash balance but the company’s long-term plans to return capital to investors, clearly shows that management believes the good times are here to stay.  

Unfortunately, as these home builders announce their plans for growth, there is much speculation that the government could be drawing up plans to take some of the heat out of the housing market.

If this speculation proves true, it could be time for investors to take some cash out of these home builders they start to plummet. 

LondonTaking precautions

Land Securities Group (LSE: LAND) the UK’s biggest listed property developer is already taking steps to insulate itself from a property market down-turn. The developer has recently stated that it is cautious on the outlook for the London property market and is now only considering developments if they are pre-let; suggesting the London property market could be nearing the top.

Based on experience, it’s statements like these that usually start the tail wagging and send investors running for cover as the country’s largest developers turn cautious on the market’s outlook.

So, perhaps it could be time to follow Land Securities’ lead and take some money out of the UK property market, in favour of better opportunities elsewhere. 

Other opportunities

Only time will tell if the UK housing market is about to take a tumble but the last thing you want to do if it does is gat caught by surprise.

With this in mind the Motley Fool's top analysts have put together this free report entitled "The Motley Fool's Three Shares To Beat Property".

The report outlines three stocks you can by today with minimal exposure to the UK housing market and great growth prospects.

Click here to download your free copy today.

Rupert does not own any share mentioned within this article.