It’s no secret that the UK homes market is in a rut right now. Latest data from the Office for National Statistics, for instance, shows average property prices crawled just 1.2% higher in May, slowing from April and reflecting the continued pressure that Brexit is causing to homebuyer appetite.
It’s quite possible that things will get even worse over the coming year, a recent survey carried out by Reuters suggests. In the event of Britain embarking on a disorderly EU withdrawal — possibly as soon as October 31 — then property values could actually fall by around 3% in the following six months, according to a panel of property experts.
And most chillingly, the report suggested that prices in London could fall by a shocking 10% in that time.
Low rates to keep supporting sales The coronation of Boris Johnson as prime minister a month ago, and the subsequent stepping-up of the chances of a no-deal Brexit. means that it stands to reason that the homebuilders should remain ‘on sale’ right now. Indeed, the two sector blue-chips which I currently own, Taylor Wimpey (LSE: LON:TW) and Barratt Developments (LON:BDEV) (LSE: BDEV), both trade on bargain-basement forward P/E ratios of around 7 times and 8 times respectively.
I believe that the near-term risks created by the challenging political landscape are more than factored in at these levels, however. Let’s be clear: there simply aren’t enough homes out there to meet demand, thanks in part to low interest rates which continues to drive buyer activity.
A report released this week by the Tony Blair Institute suggests that “[the] culprit for sky-high house prices is low global interest rates that have made it easy for home owners and investors to take on large amounts of mortgage debt and pay ever more for houses.” And it’s likely that this critical support lever is here to stay, and especially so should the financial impact of Brexit decimate the UK economy.
12%-plus dividends! One more thing worth noting from that report: this current environment of rock-bottom rates, and the subsequent ease with which property ownership can be achieved, means that even if the government were to meet its building target of 300,000 new homes per year, average property values would still only fall by around 10% over the course of some 20 years.
It certainly appears, then, that the likes of Barratt and Taylor Wimpey can be confident that profits should continue to rattle broadly higher in the years ahead. Ripping demand looks set to continue outpacing supply and both firms are steadily increasing production to capitalise on this ripe landscape.
To conclude, then, I reckon the cheap share prices of both FTSE 100 firms provide an attractive entry point for long-term investors to buy in at. What’s more, with Taylor Wimpey and Barratt also boasting gigantic forward dividend yields of around 7.5% and 12.5%, I reckon they’re worth serious consideration from income chasers in particular. I bulked up my own personal Stocks and Shares ISA with these dividend heroes and reckon that you should too.
Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019