Irish housebuilding stocks rise on UK construction pick-up
Irish housebuilding stocks jumped, largely in response to UK data showing a housing-led recovery in the British construction industry since it reopened after the Covid-19 lockdown.
Cairn Homes jumped more than 3% and Glenveagh Properties was up by just under 3%, although Abbey declined.
UK data for June – via research firm IHS Markit’s monthly purchasing managers’ index – showed a strong return to growth for British construction firms last month.
The index hit a 55.3 point reading, well above the neutral 50 point mark which separates a sector in decline from one in growth mode and up from 28.9 in May. It was the highest reading since July 2018.
Growth was driven mostly by housebuilders, but commercial and civil engineering construction companies also reported an increase in activity.
Added to that broad data, Barratt Developments – one of the UK’s leading housebuilders - said it was beginning its new financial year with “cautious optimism”. This was despite it reporting that its completed housing deliveries had fallen by a third as the coronavirus crisis halted construction activity.
While completion volumes slipped to 12,604 homes for the period ended March 22 from 17,856 homes a year earlier, the UK company’s forward order book carried a value of £3.25bn (€3.6bn) as of the end of June, versus £2.6bn in 2019.
Goodbody’s chief economist Dermot O’Leary – who last month suggested Irish house prices could fall by 9% this year – said the slump in UK house sales looks temporary, although UK prices could fall by up to 15% this year.
"After collapsing by around 60% in April, demand has bounced substantially since the easing of lockdown restrictions began. In the four weeks to June 20, we estimate that new [UK] home sales nationally were modestly above [by around 4%] the equivalent period in 2019," he said.
"It is too early to tell whether this simply represents a catch up from the month of lost activity, but the bounce from the depths of the collapse is impressive and represents a V-shaped recovery in new home sales," he said.
"The resilience of new home prices thus far may be explained by the relative resilience of demand and the fact that new home stock levels remain relatively low, having fallen by 6% year-on-year on the latest reading. Our models assume a 10%-15% decline in UK house prices and while there are significant demand risks as furloughs come to an end, there may be upside risk to this forecast," he said.
Goodbody has buy recommendations on most UK housebuilders including Barratt, Persimmon, Bellway and Taylor Wimpey.
More UK housing market clarity is due this week, with Halifax’s latest house price index, Royal Institution of Chartered Surveyors (RICS) data and trading updates from Persimmon and Vistry due.
