The Taylor Wimpey (LSE:TW) share price has had a pretty good run over the past 12 months, increasing by around 80%. By comparison, the FTSE 100 index is only up by about 23%. So that’s a pretty impressive market-beating performance.
But why is the stock price rising? And should I be adding the company to my portfolio?
The rising Taylor Wimpey share price
Homebuilding stocks, in general, have been performing relatively well recently. While lockdown restrictions have made house sales rather challenging, demand didn’t disappear. And so, house prices over the last year have actually increased by nearly 6%, especially properties with larger open areas like a garden.
What’s more, the housebuilding sector has been receiving particular support from the government. The temporary cut in stamp duty during 2020, the Help-To-Buy scheme, and now the new Mortgage Guarantee scheme are all helping individuals get onto the property ladder. Needless to say, it has created quite a favourable environment for Taylor Wimpey.
Last month, the company published its full-year results, and in my opinion, they showed some encouraging trends. Total revenue and home completions fell by around 36% and 39%, respectively, for the year. This is certainly not good news. However, the drop in performance can be largely attributed to the early disruptions of Covid-19. In other words, they are a short-term problem.
But, taking a closer look at the firm’s operations revealed that it achieved a new record of 10,685 forward orders on homes. That’s a 10% increase since 2019. Meanwhile, the average selling price grew to £288k from £269k. Combining all that with the reinstatement of dividends makes the rising Taylor Wimpey share price understandable to me.
The risks that lie ahead
Real estate is often thought of as a safe investment. But this is not always the case, and just like any other business, there are some risks to consider. A primary one is the government support schemes. These have been monumentally helpful to both homebuilders and consumers. But they won’t last forever and have already begun changing.
For example, this year, the Help-To-Buy scheme now has maximum home price restrictions and is limited to first-time buyers only. Also, let’s not forget the entire scheme is ending in March 2023. And once government support is removed, it’s likely to result in a slowdown in home sales that could significantly impact Taylor Wimpey’s bottom line, and consequently, its share price.
Final thoughts
Given the rising trends in Taylor Wimpey’s performance towards the latter half of 2020, I believe its share price can recover to pre-pandemic levels in 2021.
However, with government support schemes ending in the near future, I’d rather wait and see how the sector performs once the ‘training wheels’ come off. Therefore I won’t be adding Taylor Wimpey to my portfolio today.
