Despite a stock price wobble more recently, the housing sector has been one of the strongest performing segments across the FTSE during the course of 2015.
Construction plays Taylor Wimpey (LSE: TW) and Crest Nicholson (LSE CRST) have both seen their share values surge by around a third since the turn of the year, a theme shared by other industry heavy-hitters like Persimmon and Barratt Developments.
Sure, persistent fears of a potential housing bubble and the possibility of Bank of England rate hikes continue to do the rounds. And in recent weeks, concerns over builders’ margins looking ahead have halted the stocks’ stunning momentum. But the relentless stream of positive trading updates across the sector suggests that Taylor Wimpey and its peers should remain upwardly mobile for some time yet.
Meanwhile, property advertiser Rightmove (LSE: RMV) has seen its share value explode by almost three quarters so far this year, and I would not expect thisgrowth to slow any time soon as buoyant homebuyer demand drives listings — the business saw UK residential property listings leap 10% between January and June, to 1.1 million.
What can we expect in 2016?
Well, data from the British Bankers’ Association (BBA) released yesterday once again highlighted the supply/demand crunch that continues to drive house prices skywards. The organisation advised that new home loans totalled £14.2bn in October, up from £13.1bn in the previous month and representing the highest monthly figure since before the 2008/2009 financial crash.
The BBA advised that “consumers remain confident and their incomes are growing,” adding that “mortgage rates are at multi-year lows and people are snapping up the very competitive deals being offered by banks.”
And conditions are likely to receive an extra boost as fears over the global economy keep British interest rates anchored around record lows, potentially pushing projections of increases into 2017 and beyond. Such a scenario obviously plays into the hands of the housing sector as well as those servicing the industry.
So what does the City think?
Given the positive state of the housing market, Taylor Wimpey is expected to follow an estimated 32% earnings advance this year with a 15% bounce in 2016, creating an ultra-low P/E rating of 12.4 times.
And Crest Nicholson offers similarly-splendid value for money — a 22% rise in the year to October 2015 is anticipated to be followed by a 24% improvement in fiscal 2016, resulting in an astonishingly-low earnings multiple of 8.6 times.
These exceptional earnings prospects, combined with both firms’ astonishing cash-generative qualities, are expected to keep dividends spiralling higher in the coming year and beyond. Indeed, a dividend of 27.3p per share is forecast for 2016 at Crest Nicholson, yielding a market-bashing 5.4%. And Taylor Wimpey carries a brilliant yield of 6% for next year thanks to a projected 11p reward.
Over at Rightmove, a 15% earnings rise for 2015 is expected to edge up to 16% in 2016. And while a prospective earnings multiple of 28.5 times may appear heady, I would argue the company’s proud record of delivering double-digit growth year after year fully merits this premium. And I expect earnings expansion at the firm — along with that of Crest Nicholson and Taylor Wimpey — to keep rocketing higher in line with British homes demand.
