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Housebuilder Stocks Fall in 2016 Despite Rising House Prices

Despite economic headwinds, UK house prices continue to rise in 2016. But housebuilder stocks were quashed amid Brexit fears

Karen Kwok 9 January, 2017 | 4:33PM

UK house prices continued to rise in December, official figures revealed on Monday. UK property prices in the three months to December 2016 were 6.5% higher than in the same period the previous year, according to Halifax house price index. The December data showed the annual rate of growth increased for the second consecutive month, the report added. Prices in the final quarter of the year 2016 were 2.5% higher than in the previous quarter.

Martin Ellis, Halifax’s housing economist said he expected house price strength would continue heading to 2017.

“Slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, are expected to reduce housing demand during 2017. UK house prices should, however, continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates,” said Ellis.

Jonathan Hooper, managing director of Garrington Property Finders the property services provider echoes Ellis’s views, saying that the imbalance between demand and supply is playing a big part in driving up prices.

“With Royal Institution of Charted Surveyors data showing that levels of unsold sold stock remain at a record low, competition among buyers in many areas is rising. With interest rates still at record lows, growing numbers of buyers are deciding that now is the time to act – and rising levels of mortgage approvals hint at a surge in purchases to come,” said Hooper.

Mario Berti, chief executive officer of Octopus Property added that sterling weakness would continue to attract foreign buyers, again bolstering prices.

However, Halifax’s Ellis expected the annual house price growth nationally to slow to 1-4% by the end of 2017.

“The relatively wide range for the forecast reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy this year,” said Ellis.

Housebuilder Stocks Hammered in 2016

Positive house price data did not help to housebuilder stocks in 2016 however. Housebuilder stocks took a hard hit last year thanks to rising concerns about a post-Brexit economy. Housebuilders’ share values fell more than 11.6% on average in 2016, data from Morningstar Direct revealed.

Among 15 housebuilder stocks, retirement housebuilder McCarthy & Stone (MCS) was the worst performing housebuilder stocks, losing 36.2% in 2016. This is followed by Barratt Developments (BDEV) and commercial property stock Berkeley Group Holdings (BKG), which both fell 21.2% in value in 2016. Taylor Whimpey (TW.) also saw its shares values down 19.1% in the year. Housebuilders Telford Homes (TEF) and Bovis Home Group (BVS) each dropped 15% in value in 2016.

While share values of housebuilder stocks are beaten down, some of those housebuilders remain positive towards the UK house market and their ongoing performance looking forward.

Barratt is engaged in acquiring and developing land, planning, designing and constructing residential property developments and selling the homes it builds throughout Britain. Shares prices of the company were hammered after the EU referendum outcome. This is due to concerns on the UK economy that will likely result in a slower growth in the UK house market. In November 2016 Barratt Development said market conditions remain healthy, while consumer demand is strong supported by good mortgage availability and an undersupply of homes. The company said UK remains an attractive market. The company expects to deliver further good progress on operating performance in 2017. It expects to deliver cash returns of £1 billion of dividends in the three year period to November 2017.

Berkeley Group the high-end housebuilder said both revenue and profit grew in the first half of its financial year in 2016, and it remains on track to deliver on its target of £2 billion in profit for the three years ended April 2018.

Berkeley added higher property transaction costs and uncertainty relating to the Brexit vote have impacted transaction levels throughout 2016. However, Berkeley added that pricing remains resilient, and in overall terms, its prices have moved in line with the market. At higher price points, Berkeley said it has absorbed the impact of the rise in stamp duty charges, though said this was "more than offset by increases elsewhere".

Taylor Whimpey also said in November that trading during the second half of 2016 so far has been strong, despite some uncertainty remaining in the market following the UK's vote to leave the European Union.

"While there remains some uncertainty following the UK's vote to leave the European Union, we are encouraged to see that the housing market has remained robust and trading has remained resilient," said Taylor Whimpey’s chief executive Pete Redfern.

"We have a strong order book position for 2016 and going into 2017, and we will maintain our focus on delivering our medium term targets,” said Redfern.

Among all housebuilder stocks, MJ Gleeson (GLE) and Smart & Co (SMJ) were the two housebuilder stocks that managed to grow their share prices in 2016, gaining 4.9% and 4.6% respectively.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barratt Developments PLC652.80 GBX0.09
Berkeley Group Holdings (The) PLC4,529.00 GBX0.00
Bovis Homes Group PLC1,163.00 GBX0.17
McCarthy & Stone PLC135.60 GBX-0.66
MJ Gleeson PLC810.00 GBX3.58
Smart (J) & Co (Contractors) PLC117.50 GBX0.00
Taylor Wimpey PLC172.40 GBX-0.89
Telford Homes PLC  

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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