Proactive Investors - Taylor Wimpey PLC (LON:TW.) and Bellway PLC (LON:BWY) could be among key beneficiaries of a strong rebound within the housing market, according to CitiGroup analysts.
Improving sentiment as mortgage rates decline, and a subsequent return of buyers who had been holding off, should fuel a recovery into next year, Citi analysts said in a note.
Depending on the pace of such a recovery, potential re-ratings could be in order as housebuilders benefit from rebounding demand, analysts added.
“We continue to be bullish on the sector’s multi-year cyclical recovery prospects,” Citi said.
“Significant pent-up demand [...] is likely to drive strong site absorption rates as current affordability constraints ease on the back of lower rates.”
A rapid increase in interest rates over the past year has hit the sector, with the knock on effects of higher costs dampening demand.
However, the Bank of England’s decision to hold base interest at 5.25% recently in its bid to stem inflation has led to optimism that rates may have peaked.
“With the sector having a strong finish to 2023 given optimism that the worst of housing pain is now behind, we believe investors are likely to become more selective in 2024 with companies exhibiting significant supply-side strengths likely to be outperformers,” Citi added as a result.
Taylor Wimpey and Bellway were highlighted as the bank’s top picks, with ‘buy’ ratings being issued for each respectively.
Shares in the former climbed 5% to 144.4p on Thursday morning, while Bellway jumped 4.4% to 2,573p.