House Builder Stocks Rise In 2015: Confidence Is In The Home Buyers

By Author: Bradley Weiss
Total Articles: 272
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Market analysts were pessimistic in January. But the Help to Buy scheme is one of many reasons investors in builders, land and infrastructure see things looking up.


The investors in UK homebuilding and related economic sectors might be forgiven for wearing a neck brace in 2015. This would be due to a type of whiplash in how market analysts are seeing the industry, particularly in the run-up to the General Election.


After bearish predictions in January and February, alternative investments in art or antique cars might have taken capital away from land, building and construction supply industries. Knight Frank announced in mid-February, “expectations for future price growth fell to the lowest level in 18 months,” a finding of its Markit House Price Sentiment Index (HPSI) survey. About four weeks earlier, Bloomberg Business reported that shares in Taylor Wimpey, the UK homebuilder, fell 6.2 per cent while Berkeley Group Holdings, Persimmon, Barratt Developments and Right move, a property website, ...
... all were categorised to underperforming. These dim predictions were based on negative news regarding mortgage approvals, housing transactions, lower UK GDP growth and weak house-price data at the beginning of the year.


But Knight Frank’s numbers in February weren’t all that bad, and new information in March has homebuilders looking good again. Its report was in fact about price expectations, a measure of consumer confidence. Expectations for future price growth overall fell to the lowest level in 18 months, but of the 1,500 households surveyed in the UK almost one in five said the value of their homes had risen in the past month (compared to 6 per cent who said their home prices fell).


Which is probably related to what came next, which is the Reuters report in early March 2015 that Taylor Wimpey profits rose 68 per cent in 2014, enabling the company to double its final dividend, cheering investors. What may further encourage strategic land partnerships is that the house builder credits some of its profitability to investments in UK land over the preceding five years. The firm built 12,454 homes in 2014, a small but significant dent in the UK’s housing shortage problem. The Department for Communities and Local Government says that 118,830 new homes were built in England in 2014, short of the need but far ahead of 70,000 and 80,000 totals of just a few years ago.


The strong demand for housing has much to do with these companies’ fortunes, of course. More than two years in the Help to Buy scheme, the Government’s program me that allows borrowers to get on the property ladders with only a 5 per cent deposit and a loan worth 20 per cent of the property’s cost, the Mortgage Advice Bureau, an independent mortgage brokerage, says that the scheme has had a material and positive effect on both buyers and builders.


The Mortgage Advice Bureau, an independent mortgage brokerage, says that Help to Buy has had a material and positive effect on both buyers and builders. Lower-cost homes - at £205,000 versus the market average £230,000 – were being purchased by Help to Buy clients, who earn about 19 per cent less than average homebuyers. “The data also suggests the supply of new homes in 2014 would have been noticeably worse without Help to Buy,” says the company’s new homes director. “There would certainly have been fewer first-time buyers able to push their way to the front of the queue. This is one state scheme that has hit its mark and it will be up to the next government to build on this commitment with more radical and forward thinking measures to give house building the necessary boost.”


Leading up to the General Election, there will certainly be more talk about the country’s housing shortage. This is hardly news to the industry, including investment partnerships that identify land that can be rezoned for residential and commercial building.


And while the excitement of high demand for any product can draw investors from far and wide, they should take a position with fair caution. An independent financial advisor should be consulted for objectivity and seasoned advice.