The bigger-than-expected fall in inflation yesterday spurred movements in the UK stock, bond and currency markets on Wednesday. This was especially noticeable in the listed housebuilder sector. Prices in the five housebuilders that Morningstar covers rose by up to 8.20% yesterday and have continued rising into Thursday trading.
While the housing market remains under pressure, with prices falling and mortgage costs continuing to rise, this week’s price bounce suggests an element of relief.
The worst-case scenario of 6% interest rates could now be swerved, and rates could even start falling if inflation continues to trend downwards. But a month’s data is hard to extrapolate from and the market may be getting ahead of itself.
We looked in detail at the current housing market malaise in a recent article How Serious is the UK Mortgage Crisis?
Short-term share rallies can often be misleading so let’s put these gains into context: four out of the five stocks we cover are now higher year-to-date after some heavy falls in 2022.
But the same proportion of shares are considered to be significantly undervalued, according to Morningstar metrics. Persimmon, Belway, Taylor Wimpey and Barratt Developments all have a 5-star rating, while London-focused housebuilder Berkeley has a 4-star rating.
Morningstar’s property analysts Grant Slade and Ava Gams say current valuations for housebuilder shares price in an extended slump for the market. Instead, they argue structural factors – high prices, ongoing demand for rental properties, migration patterns – are likely to back the long-term story for UK property.
We’ve summarised their arguments in A Market Crash? Don’t Bet the House on It.
