By Not so long ago, the share prices of the UK’s leading housebuilders were what brokers and investment banks would describe as a strong buy, maybe even a stonking one.
From a low point of 384p a share in April 2020, the first Covid-19 lockdown and the closure of the housing market, Barratt Developments’ share price more than doubled to 795p a share a year later.
That was still, it should be said, a little lower than on the eve of the pandemic, but still a formidable recovery, which matched the housing market’s speedy return to growth, and rising prices.
Barratt was not untypical.
Taylor Wimpey’s share price had a more difficult 2020 but by April 2021 was almost 90% up on its spring 2020 low of 101p.
Persimmon rose from 1,622p to 3,210p over the same period.
That was then.
This year has, however, been much more difficult for investors in the housebuilders.
The Barratt Developments’ share prices is down by 43% so far this year, and by 46% from that April 2021 high.
Only the 2020 pandemic -related slump has seen the firm’s share price lower in recent years.
It is not alone.
The equivalent share price moves for Taylor Wimpey are a fall of 38% so far this year and of 42% since April 2021. For Persimmon there has been a 48% share price fall so far this year, and the price has more than halved since April 2021.
You would not know there was any reason to be concerned from the housebuilders’ own statements.
Barratt, in announcing its final results for the year to June 30, was upbeat.
“This has been a year of fantastic progress, with completions recovering to pre-pandemic levels and excellent productivity across our sites,” said David Thomas, Barratt’s chief executive.
“Customers are at the heart of everything we do and we were awarded more NHBC Pride in the Job Awards than any other housebuilder for the 18th year in a row – testament to the high quality we consistently achieve across our sites.”
While noting that there were “macroeconomic uncertainties ahead”, Thomas added that “our financial strength and operational excellence position us well”.
Market fundamentals remained sound, Barratt added in its statement, with a continued imbalance between supply and demand, as well as good mortgage availability.
So what is ailing the share prices of the housebuilders? The answer, in short, is those macroeconomic uncertainties cited by Barratt. HSBC, in a recent forecast, gave housebuilding shares another downward knock with a prediction that house prices outside London will fall by an average of 7.5%, while prices in the capital would fall by 15%.
New-build properties would see a 5% price fall across the country, it said.
The HSBC forecast is at the gloomy end of the range. The Centre for Economics and Business Research, in its latest Housing Prospects report, also predicts price fall next year, but of 4.5%.
Many other forecasters merely expect prices to merely tread water when the rate of increase comes back to earth from current double-figure levels.
Even so, the gloom is catching.
Just this week Berenberg, the bank, downgraded leading housebuilders from “buy” to “hold”, except for Berkeley Homes, which it upgraded to “buy”.
“We think that there will be a combination of negative headwinds emerging simultaneously,” it said.
“We expect the companies in the sector to endure significant margin erosion as we think that price growth (0%) will lag build cost inflation (5%).
The most significant driver of this reduced pricing power will be a decline in affordability from the combination of higher mortgage rates and cost-of-living increases.”
Others have also shifted their view on the sector.
Last month Davy Stockbrokers announced “material downgrades” in their forecasts for the sector, warning that “the end of Help to Buy and increasingly squeezed affordability are likely to combine with a bleak UK macro outlook to materially cool the new homes market in the next 12 months.”
So, housebuilders are under the cosh.
But investors should remember that the housing market has shown tremendous resilience over the past couple of years.
The gloom may be overdone.
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