Barratt Development shares touch new highs / Image source: Barratt Developments
  • Gains across the sector year-to-date
  • Some stocks trading at new highs
  • Eyes on Berkeley Group this week

Even though the most recent results from housebuilders such as Barratt Developments (BDEV) and Bellway (BWY) were resolutely downbeat, the firms’ share prices have been on the charge since the middle of October as investors have bet on the Bank of England continuing to hold interest rates at their current levels.

Barratt and Redrow (RDW) are actually at new highs for the year, up 31% and 21% respectively, while Taylor Wimpey (TW.) shares have gained 30% and Bellway and Berkeley Group (BKG) have gained 26% apiece.

Only Persimmon (PSN) has lagged the field, with a rise of just under 6% for the year.

GLOOMY SALES OUTLOOK

In its October AGM (annual general meeting) update, Barratt Developments reported a drop of 30% in forward sales including joint ventures and said private reservations ‘continued to reflect the mortgage challenges faced by potential homebuyers, as well as the absence of Help to Buy’, which accounted for 12% of private reservations in the prior-year period.

For the full year it predicted a drop of between 17% and 23% in completions and said it would drive revenue through the targeted use of incentives while keeping a tight rein on costs.

The same week, smaller rival Bellway slashed its forecast for completions to just 7,500 homes compared with nearly 11,000 in the year to the end of July.

In addition, the Newcastle-based developer said its average selling price this year would be in the region of £295,000 compared with more than £310,000 last year due to an increased volume of social housing and the continued use of incentives to attract buyers.

However, it was around this time investors started to bet on the Bank of England keeping rates unchanged at its November meeting, and clearly they settled on the housebuilders as the best proxy to play this theory.

HOUSE PRICES STABILISING

Their confidence has been bolstered by positive moves in house prices, which have risen for three months in a row through November according to the latest Nationwide survey.

Nationwide chief economist Robert Gardner believes the shift in interest rate expectations means buyer confidence is returning to the market.

‘There has been a significant change in expectations for the future path of bank rates in recent months. In mid-August, investors had expected the Bank of England to raise rates to a peak of around 6% and lower them only modestly to around 4% over the next five years. By the end of November, this had shifted to a view that rates have peaked at 5.25% and will be lowered to around 3.5% in the years ahead.’

Whether the market is right to have bet so heavily on the housebuilders we will find out when they report in the coming weeks, meaning this Friday’s second-quarter update from Berkeley Group will be closely watched.

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Issue Date: 04 Dec 2023