Data released this week by Halifax shows that house prices have risen at their fastest annual rate since 2007. That’s great news for housebuilders, since it means that the price they receive for the homes they build is on an upward trajectory and should mean higher revenues and profits going forward. It also signifies that demand for housing continues to push upwards, which should mean a quicker turnaround for the sector in terms of how long it takes to sell houses.
With this in mind, here are three of the FTSE 100‘s best housebuilders that stand to benefit from a buoyant housing market.
Barratt (LSE: BDEV) is the UK’s biggest housebuilder by volume and appears to be benefiting hugely from rising house prices. Indeed, net profits are forecast to more than double in the current year, followed by growth of 40% next year. A key reason for this is that the first-time buyer and family homes markets that Barratt focuses on are particularly strong at present and, with there being a lack of supply in these areas, they could prove to be highly lucrative in future, too. Although Barratt yields just 3% at the moment, it is set to increase dividends per share by 41% next year and this means that a 4.3% yield should be on offer during the next financial year, with further dividend increases likely should profits continue to rise.
Bovis (LSE: BVS) is also set to benefit from rising house prices, as its full-year profits are expected to be 69% up on last year, and a further 31% higher next year. Despite this, shares in the company trade on a price to earnings (P/E) ratio of just 9.5. This appears to be very cheap when you consider that the FTSE 100 has a P/E of 13.5. As with Barratt, current dividends are somewhat lacking (shares in Bovis currently yield just 3.1%), but could be yielding as much as 4% next year as dividend per share growth follows the pace of earnings growth.
Berkeley (LSE: BKG) is a slightly different beast than Barratt and Bovis. That’s because it focuses on prime properties, as opposed to first time buyer and mid-end family homes. However, this part of the market continues to offer high potential, with Berkeley finding it relatively straightforward to sell properties in new developments at ever higher prices. Despite this, it trades on a P/E of just 10.1 and, although bottom-line growth is forecast to be far more pedestrian than at Bovis or Barratt, earnings increases in the high single digits remain ahead of the wider index. Furthermore, Berkeley is starting from a higher base level of profit after the prime property market has shown strength in recent years. Therefore, it remains a highly attractive buy, alongside Barratt and Bovis.
Peter Stephens has shares in Berkeley Group Holdings.