Will Barratt Redrow, Taylor Wimpey, and Persimmon shares be blown away in the Budget?

Persimmon (LSE: PSN) shares have had a rough ride. The FTSE 100 housebuilder is down 23% over the past year and 47% over five, recently trading at around to 10-year lows. That’s grim reading, but the wider sector hasn’t fared much better.

The Barratt Redrow share price is down 18% over 12 months and 20% over five. Taylor Wimpey, a stock I’ve bought myself, has performed so poorly that it’s dropped into the FTSE 250 after falling 31% in the last year. Despite a small five-year gain of 1%, it’s trading well below its level of a decade ago.

Housebuilders are first in line when the economy suffers. A new home is the biggest purchase most people ever make, and confidence is low as wages stagnate, interest rates stay high, and prices remain steep. The cost-of-living crisis, mortgage pain, and the planning logjam have all taken their toll. So did the end of the Help to Buy scheme in 2022.

FTSE 100 building bust

Government policy has made things worse. The last Budget hiked employers’ National Insurance and pushed up the minimum wage by 6.7%, driving up developers’ costs. The cladding fire safety scandal will cost the sector £2bn and potentially more. It’s been one hit after another.

Now there’s more uncertainty before the next Budget on 26 November. Talk of a ‘mansion tax’ on expensive homes, or new levies on buy-to-let landlords, has gummed up the property market.

The Bank of England has cut rates five times since last year but they’re still relatively high at 4%, and mortgage lenders have been slow to bring rates down. For now, the housing market remains stuck in neutral.

Results offer some comfort

Persimmon’s 13 August market update showed it expects between 11,000 and 11,500 completions this year, despite cost pressures and the threat of fresh taxes in the Budget. Its private forward order book rose 11% to £1.25bn, and half-year underlying pre-tax profits climbed 11% to £165m.

Management warned margins could tighten next year. Persimmon also faces a £15.2m bill as part of a £100m industry payout to fund affordable housing after a price-collusion probe. It never ends.

Value and dividends

At least the sector looks cheap. Persimmon trades on a price-to-earnings ratio of 13.3 and boasts a handy trailing dividend yield of 4.93%. Similarly, Barratt Redrow’s P/E is also low at around 15, with a 4.56% yield, while Taylor Wimpey’s P/E is 12.75 and it yields a bumper 8.95%.

A mansion tax may not blow them away, but it won’t help. On the other hand, if it doesn’t happen, that could give the shares a welcome boost. Britain still needs homes, and these firms are the ones that build them.

I bought Taylor Wimpey for long-term income and growth. So far, I’ve got the income, and I’m hoping the growth will arrive next year, if inflation and interest rates fall as predicted. I think any of these three stocks are worth considering as part of a balanced portfolio, but only with a long-term view. The next decade for housebuilders could be brighter. It could hardly be worse. Nervous investors might want to see what the Budget brings first.

The post Will Barratt Redrow, Taylor Wimpey, and Persimmon shares be blown away in the Budget? appeared first on The Motley Fool UK.

More reading

• Is an Autumn Budget crisis coming for these FTSE 100 stocks?
• 2 FTSE 100 stocks down 19% and 61% to consider in November 
• These 3 household-name UK stocks have plunged 30% in a year! Time to consider buying?
• Is a turnaround coming in Persimmon’s £11+ share price after a 29% fall this year?

Harvey Jones has positions in Taylor Wimpey Plc. The Motley Fool UK has recommended Barratt Redrow. 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.

See author's posts