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Understanding housebuilders

What are current share prices telling us about the future prospects of the UK housebuilding sector?
Understanding housebuilders

The UK housebuilding sector has been through numerous boom to bust cycles. After many of the country’s big builders were brought to the edge of collapse during the financial crisis of 2008-09, the past few years have been much kinder to the companies and their investors.

During the past five years, shareholders in housebuilders have enjoyed stellar returns as share prices have soared and big dividends have been paid out. However, during the past year clouds have appeared over the sector and total returns to shareholders have turned sharply negative, even though profits and dividends have continued to increase.

History tells us that the fortunes of housebuilding companies will eventually turn downwards, but that predicting when that will happen is very difficult. However, by studying the sector’s financial performance, it is possible to get an insight into what current share prices are telling us about the future. You can then take a view as to whether you want to buy, sell or stay clear.

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