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Trading update: which of these 3 builders is likely to cope better with the UK recession?

Modern suburban family houses with car on driveway
Image source: Getty Images

This week, three UK house builders — Persimmon, Barratt Developments and Taylor Wimpey — released trading updates for 2022. With the UK economy expected to enter recession in 2023, I’ve been looking for clues as to how these companies are going to be affected.

Strength

The language used in the three updates is strikingly similar.

Dean Finch, the chief executive of Persimmon, describes 2022 as a year of “strong performance“. His counterpart at Barratt Developments, David Thomas, suggests that the company has delivered a “strong operatering performance“. Meanwhile, Jennie Daly at Taylor Wimpey, describes her company as “strong and agile“.

The table below compares key metrics for the three companies.

Metric

Persimmon 2022 (2021)

Barratt Developments 2022 (2021)

Taylor Wimpey 2022 (2021)

New home completions

14,868 (14,551)

18,467 (16,233)

14,154 (14,302)

Average selling price (£)

248,600 (237,078)

330,000 (327,400)

352,000 (332,000)

Forward sales position (£bn)

1.0 (1.6)

2.5 (3.8)

1.9 (2.6)

Plots owned

87,200 (88,043)

67,397 (66,555)

83,000 (85,000)

Outlook

Recent increases in interest rates, and the removal of mortgage products from the market, has affected sales. The decline in order books is significant and ranges between 24% and 38%.

During 2022, private net sales for Persimmon averaged 0.69 per outlet per week. This fell to 0.19 during the last seven weeks of the year. The biggest reductions were observed in those sites where the government’s Help to Buy Scheme, which is now closed for new applications, was most popular.

Barratt Developments saw reservations fall to 0.30 per outlet between 10 October and 31 December 2022. Taylor Wimpey’s sales rate was 0.48 for the second half of 2022, compared to 0.85 for the previous year.

In 2023, the emphasis for Persimmon is on delivering quality returns rather than volume. As with Taylor Wimpey, no indication of expected completions for 2023 has been provided.

The directors of Barratt Developments are forecasting a range of 16,000 to 17,475 new home completions this year, depending on economic conditions.

Historically, sales rates increase in spring, so how the three builders will fare in 2023 will become clearer during the early part of the year.

What to make of this

Personally, I believe the medium-term outlook for the UK housing market is positive.

Many renting in the private sector complain of unaffordable rents. Young people are frustrated that they are unable to get on the housing ladder. The solution to both of these problems is to build more houses. As we approach the General Election, housing will rise towards the top of the political agenda. I’m confident that we’ll then see promises to re-introduce support for first-time buyers.

The average selling price of houses may be lower but volumes should rise.

All three companies are used to dealing with the peaks and troughs of the UK housing market. All pay generous dividends, although current levels will be re-visited once the outlook becomes clearer.

I already own shares in Persimmon and, although its share price has taken a bit of a battering over the past 12 months, I’m happy to sit back and re-invest the dividends, while waiting for the UK housing market to recover. The other two are also good companies. However, I believe in the benefits of diversification, therefore, I only want one builder in my portfolio.

The post Trading update: which of these 3 builders is likely to cope better with the UK recession? appeared first on The Motley Fool UK.

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James Beard has positions in Persimmon Plc. 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 2023