Housebuilders have absolutely flown out of the gates in January. Could they be the one stock sector to watch in 2020?
There’s been a raft of impressive industry updates released in recent sessions suggesting just that. Signs are emerging that the Conservatives’ thumping general election win in mid December turbocharging buyer demand. And the latest gauge from Rightmove has arguably been the most impressive of the lot.
Broken records
Over the weekend, it said that average house prices have leapt 2.3% month-on-month for its January index. This is the fastest new year rise since its index began, rebounding from the 0.9% drop back in December. The average value now sits at a record £306,810.
Rightmove director Miles Shipside says the clearer near-term Brexit outlook has released a lot of pent-up demand created by three-and-a-half years of political confusion. We could be in for “an active spring market,” he suggests, and further data from the online property lister backs this up.
There have been 1.3m buyer enquiries since the December 12 ballot, up 15% from the comparable period a year ago. Meanwhile, the number of sales already agreed has risen 7.4% over the same period.
Calm before the storm?
The UK’s now all-but-guaranteed to leave the European Union on January 31. This means the threat of more interim deadlines and Article 50 extensions in the near term has been removed. The next big one comes at the end of the year when a trade deal between London and Brussels will need to have been created. And this means house prices could continue their rapid ascent for some time yet.
But don’t get too excited, I say. Prime Minister Boris Johnson’s new government has repeatedly said that either a trade deal with the European Union will be signed off by the end of 2020 or Britain will leave the transition period on a no-deal basis. Expect, then, the tension to rise again as the year progresses, a situation that would likely stymie buyer appetite again and create a fresh drag on house price growth.
Still brilliant buys
This being the case, I still believe the investment case for Britain’s homebuilders is compelling. It’s testament to the health of the housing market that these firms have (by and large) continued to grow profits and to pay out chunky dividends recently, in spite of the chronic political and economic uncertainty of the past three years.
The shortage of new homes is so substantial that even if Brexit fears are renewed, I’m confident the builders should continue to thrive. Share prices of many of these operators have leapt since that December 12 election.
And the low P/E ratios of many of them suggest there’s room for plenty more gains. FTSE 100 operators Persimmon, Barratt and Taylor Wimpey all trade on rock-bottom forward ratios of in and around the bargain watermark of 10 times. What’s more, corresponding dividend yields ranging from 6% to 9% offer plenty for dividend investors to enjoy too.
I believe these construction stars could provide investors with more to celebrate in 2020.