Any UK Housing Stocks to Gain from Recovery?

UK house prices rose for a second month in a row, suggesting the bottom might be in for house prices, but which FTSE 100 home builder is best positioned to gain?

The Rising Tide of Housing

Halifax reported Thursday that UK house prices rose 0.5% in November after increasing 1.2% in October. They are still lower than the prior year after months of declines, but the trend might prove hopeful for the UK housing industry as the BOE is seen reaching the top of its rate hiking cycle. The news came after Nationwide reported the third consecutive monthly rise in house prices last week. The resilience in the sector despite the cost-of-living crisis is being attributed to a shortage of properties rather than increased supply. This is unsurprising, given that UK homebuilders cut back on construction projects as the market weakened this year. If prices start to be buoyed and the outlook improves, construction might increase and trim some of the upward pressure on prices.

While it's still too early to say that the housing market is in a definitive rebound, the shares of homebuilders on the FTSE 100 have seen substantial growth over the last couple of months. Since the start of November, when the data started to be positive for home prices, share prices in the four largest UK home builders jumped between a quarter and a third higher. Persimmon has seen the biggest upside, gaining a little over 33% in the period, with Barratt Developments just slightly behind at a little under 33%. However, Taylor Wimpey and Berkeley lagged behind, growing just 24% and 26% respectively.

Keeping Up With the Trend

While the reaction to the news in the housing market has produced dissimilar results in homebuilders, a portion of that can be explained by looking back further. The leader of November, Barratt Developments, is still down for the year, unlike the other three. Its outsized growth over the last six weeks is more like a rebound from being the largest loser so far this year. Barratt is by far the annual underperformer, having lost around 7% since the start of the year despite the recent rebound.

While Barratt might have the largest upside in terms of recovering from annual losses, it trades at a PE of 10, which is in line with the average of the major home builders at the moment. However, the outlier in terms of valuation is Taylor Wimpey, with a PE of just 8.6, and it also offers the highest dividend yield of the four at 7.1%. This could mean it's the best value in the sector, as it has seen a smaller rebound so far and offers a larger return. Taylor Wimpey also managed to avoid some of the larger downswings in the market this year. In its most recent trading update, the company raised its profit forecast to the top end of guidance and affirmed its delivery targets for the year.

Pennant Points Upwards

Taylor Wimpey's stock price approaches the 2021 swing low at 145, with a break past it opening the door to the measured-move projection near 160, and eventually 195, should 180 give way to bulls. This follows the successful completion of a pennant right above the 100 round support. Although a drop towards 120 is possible, the likelihood of a full-blown reversal to double digits is relatively low.

Source: SpreadEx / Taylor Wimpey

Key Takeaways

The UK housing market shows promising signs with a consecutive two-month rise in house prices. This trend positively impacted FTSE 100 home builders, notably Persimmon and Barratt Developments, with significant share growth since November. Despite recent gains, Barratt is down year-to-date, while Taylor Wimpey presents potential value with a high dividend yield and a PE of 8.6. As its stock price nears a key marker, further growth is projected. The overall UK housing market outlook remains cautiously optimistic, though.