Despite proclamations of doom for house prices, Keith Burdon, UK investment manager at Britannic, i...
Despite proclamations of doom for house prices, Keith Burdon, UK investment manager at Britannic, is generally positive on the outlook for UK housebuilders and construction.
Burdon says the retail housing market has been frightened by numbers from the Halifax that showed house prices had risen by 30%, leading to concerns that prices may have now peaked.
The consensus view from housebuilders for house prices growth is a 10% rise, according to Burdon, which he says may flow into next year but then slow to 5%.
Burdon says the 30% number that comes from the Halifax includes second-hand homes and properties that have had improvements made to them. He says: 'While we are anticipating a slowdown in house price growth over the next 12 months, from 10% to 5%, this is not a decline because growth will still remain positive.'
Two factors why house prices are not going to fall off the cliff, are that interest rates are not expected to rise dramatically and at present demand for houses is in excess of supply, adds Burton.
He says: 'Forecasters are not expecting interest rates to rise so there is no threat to house prices on that front. Demographics are also supportive of house price growth continuing, as there are now many single parent families and people wanting to live on their own. As a result, supply will remain constrained while demand is robust, which bodes well for house price growth.'
Another positive factor for house prices, says Burdon, is that the industry is likely to become more fragmented and there is likely to be more consolidation, which will be good for share prices.
Burdon is modestly overweight in the housebuilding and construction sector at present, with one of his favoured stocks being Taylor Woodrow. He says that while its returns have been below average, it now has new management to improve its performance.
Crispin Finn, manager of the Credit Suisse Smaller Companies Fund, says that he is still optimistic on the sector over the long-term but is cautious on its short-term prospects.
He says: 'I am concerned that the short-term setback to the housing market will lower profits to a degree and harm sentiment.
'In this environment, companies need to demonstrate resilience. If they can do this the market will reward them more highly and re-rate them.'
The longer-term picture for housebuilding and construction is more positive, according to Finn, with just 120,000 houses currently planned for the UK and new demand for 200,000, so there is no danger of any over-supply in the foreseeable future.
Andy Brough, manager of the Schroder Mid-250 fund, says that investing in construction and building materials companies has been a key theme for the fund this year.
He says: 'The housing market aside, this area of the market is set to benefit from the Government's plans to increase infrastructure spending. Companies we expect to perform well include Balfour Beatty, Carillion and Taylor Woodrow, all of which feature in the basic industries sector.'
Rates not expected to rise dramatically.
Demand for houses in excess of supply.
More consolidation in the sector likely.
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