Housebuilding shares were mixed on Tuesday as analysts disagreed on the outlook for the sector.
While stock market valuations for the industry are still above October 2022 levels, JPMorgan warned that it sees “incremental downside risks to estimates”.
Softening in sales rates is possible given the uncertainty on interest rates - with two-year fixes hovering near 6.5% - the US investment bank said, which puts the expected volume recovery in 2024 “in jeopardy” while there is also scope for average selling prices to decline due to affordability issues.
Ahead of first-half results from Persimmon PLC (LSE:PSN) on Thursday, JPMorgan analysts downgraded their rating to ‘neutral’, saying their previously expected volume recovery 2024 “could now prove vulnerable”.
Risks were also flagged for sector rivals Taylor Wimpey PLC (LSE:TW.) and Vistry Group PLC (LSE:VTY), with among the largest downside to 2024 consensus forecasts ahead of their own half-year updates.
However, housebuilding analysts at Jefferies International, working with their bank sector colleagues, suggested that high mortgage rates “shouldn’t drive a step up in distressed home sales”, which would limit the risk of a significant downside in house prices.
“While for us this resilience of the house price may only be proved as we exit the summer, with homebuilder share prices reflecting 10-12% house price declines, for those with a more sanguine outlook for UK house prices there remains significant value.”
Jefferies’s banking analysts published four charts to back up this mortgage rate theory.
JPMorgan’s preferred play in the sector is Berkeley Group Holdings PLC (LSE:BKG), with only Bellway PLC (LSE:BWY) also getting an ‘overweight’ rating, the rest of the sector being on ‘neutral’ or ‘underweight’ stances.