(1) Cheap money (funny how the media never mentions this)
(2) Economic growth and low unemployment
(3) Lack of available housing (due to planning + empty/2nd homes + speculation driven by (1))
Now with all housing affordability metrics at record unaffordable levels, interest rates on the floor and peak employment it seems like cyclically things can only go one way from here. That would be down.
So we are at peak cycle from the look of the data. Maybe not this year, maybe not next year, but soon enough the housing market will take a wobble in the UK and these guys are vulnerable. Data is great for these companies as there are lots to choose from and all have been around at least 10 years. 2016 reported Earnings are way above the 10 year or even 5 year averages:
|UK Homebuilders Earnings Per Share - (Bovis estimated; 2016)|
Share price performance has been limited over a ten year period as this fully captures the massive effect of the last crisis on the homebuilders (TW never really recovered) and then the boom to date:
However the 5 year chart shows you where the returns have been, nothing like some government subsidies and a wall of cheap money to drive demand and keep your land bank appreciating;
Caveat Emptor for these shares.
I will do a more in depth analysis soon on this sector.
Disclosure: Disclosure: I have a small short position in Persimmon Plc. These are opinions only, not investment advice. If in doubt read my disclaimer.