Housebuilders are not heading for any Christmas cheer, reckon analysts at JPMorgan Cazenove, who have downgraded Taylor Wimpey PLC (LSE:TW.) and Redrow PLC (LSE:RDW) and turned cautious on Crest Nicholson PLC (LSE:CRST).
In a sector review, the US bank's analysts said: “We remain cautious with activity-levels going through a seasonal lull over the next few months and relatively elevated valuations in the mid-cap space.”
Taylor Wimpey is now 'underweight' from 'neutral', as is Redrow, and Crest Nicholson is on ‘negative catalyst watch’ - together with Taylor Wimpey - moving towards their results.
Current uncertainty surrounding interest rates is unlikely to unwind until Spring 2023, added the JPMorgan analysts, with risks of share prices dipping again if demand levels do not recover by February.
They predict peak-to-trough completions will decline 30%, based on current demand levels, with a 10% drop in house prices, though dividends should be covered given stronger balance sheets and counter-cyclical cash flow profile.
Berkeley Group PLC and Persimmon PLC remain the JPMorgan analysts’ favourite housebuilding stocks.
Taylor Wimpey shares fell 2% to 102.2p.