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Why House Builder Shares May Not Have the Best Foundations for Your Support Right Now

By Malcolm Stacey | Monday 12 March 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello, Share Chippers. For over a year now I’ve been suggesting investment in British house builders. Firms like Barratt (BDEV), Persimmon (PSN), Berkeley (BKG) and others. Their shares have done very well, but now I’m getting a bit chary of house-building shares.

Against all expectations - and despite subsidy schemes form Whitehall - house building is now officially in decline. For the last 9 months, the number of new homes has been falling. This January alone, the number of new homes dropped by nearly a tenth on the month before. The completion of public buildings has also suffered. The number of projects has dropped by about 4% compared to January 2017.

The collapse at Carillion is partly to blame and recently the government announced new plans to force building companies to build more homes on land they have been sitting on. But the sad implication is that the Tories’ record on tackling the continuing house shortage crisis is not getting any better.

I now only hold shares in Galliford Try (GFRD) in the house building world. And that investment has been disappointing. And I don’t think I’ll be holding those shares for much longer - or buying into any other firms either.

Now, for at least two years now, Uncle Tom has warned that house values will fall, so affecting building profits. So far - apart from the odd building company like Galliford Try - builder shares have generally risen. But my growing fear is that the government, on whom I previously relied upon to galvanise house building, is poor at making a difference.

The law of supply and demand should kick in to mean that prospective house buyers would be willing to pay more for their new property. But stagnating wages, the threat of higher interest rates to mortgage payments and ineffective government sanctions against builders who’re not building fast enough seem to have cancelled it out.

Now let’s all adjourn to the Punter’s Return.

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