This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
Shares in UK listed house builder Taylor Wimpey have gone up by 7% after the company reported H1 2016 earnings on 27 July. No Brexit effects seen thus far – but the results were for the period mostly before the vote, during which time everyone thought the last thing that would happen would be a vote to leave the EU.
A 7% jump in share price follows a solid set of numbers with increases in both quarterly profits and average selling price. A full order book that’s mostly been sold off plan already will also assure investors.
One can’t help but wonder what might happen if indeed house prices do tank by 20% as the naysayers all said they would, but the house
builders are more or less in control of supply – they build the houses after all. There’s currently so much demand for houses that, in order to balance this, some say 300,000 new, affordable homes need to be built every year. That would bring prices down, but hang on, is that what the house builders want? Of course it’s not. That’s why all the house builders together are short of the government’s desired target by 300,000 every year!
If you think all’s quiet in the housing market though, think again. Panic selling is currently taking place in Earl’s Court where the second hand off-plan market is really taking off. The image on the right is from Rightmove. This one bed flat is listed as an ‘urgent sale’ with a price of just £765,000. Worried about falling house prices?
I believe it’s fair to say that, while they’re in charge of supply, the UK’s house builders have very little reason to increase it. It’s simply not in their interests – or their shareholders’ – financially. What it could mean is that, while house prices may grow more slowly from here on due to consumer confidence issues, it’s unlikely they’ll decline, however much I’d like that to happen*!
It’s early days since the Brexit vote, but unlike many an instance whereby one should take a company’s quarterly update with a pinch of salt, if a company says it sees no impact from a major geopolitical event on the price of something, which is rising because there’s not enough supply, and that company has a hand in controlling supply, it’s either going to be a diamond miner or a house builder.
Augustin Eden, Analyst (27 July)
*I don’t own a house yet
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