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Parsing house price data in the UK is a murky business. Some statisticians like to use asking prices, others rely on mortgage approvals. The most accurate information comes from the government, which calculates the house price index using completed sales. But these numbers lag behind all the rest. That makes it difficult to judge the precise impact of rising interest rates on buyers, sellers and builders.
It makes sense that higher borrowing costs will put off buyers and thus result in falling house prices. This week, Nationwide revealed that in July, house prices had staged their biggest annual decline since 2009.
Meanwhile, sales and pre-tax profits at one of the UK’s biggest housebuilders dropped in the first half of the year. The three figures all seem to tally. So why did shares in Taylor Wimpey, the housebuilder in question, rise when its results were released on Wednesday?
The answer is that amid the rising loan rates and falling number of houses completed, Taylor Wimpey’s results showed that plenty of people still want to buy a home. Their prices, for example, appear to be resilient. The builder’s average selling price increased by 6.7 per cent to £320,000. It also expects to build 10,000-10,500 homes this year. This number is at the high end of previous guidance, even if it is below the 14,154 homes that were built last year.
Admittedly, Taylor Wimpey had plenty of other gloomy figures to wade through. Reservations were below average and pre-tax profit fell below £238mn, from £334.5mn in the same period last year. The sales rate per outlet over the past four weeks was 17.5 per cent lower than a year ago.
But because of stricter lending standards and lower transaction volumes, Lex does not think that the UK is about to experience a house price crash on the scale of the one following the 2008 financial crisis. The market is weaker but we are not expecting housebuilders to face an earnings collapse.
Here is another seemingly contradictory fact about Britain’s housing market to back up this theory. Mortgage approvals for June showed a surprise uptick, despite the highest interest rate in 15 years.
The cost of taking out a home loan now exceeds 6 per cent for two- and five-year deals. But young people are still desperate to get on the property ladder and homeowners are still keen to upgrade their accommodation. They are trying to get around higher mortgage rates by taking out longer-term loans. More than a quarter of Taylor Wimpey’s first-time buyer customers took on mortgage terms of more than 36 years in the first half of the year. By comparison just 7 per cent did the same in 2021. Other buyers who took out mortgages of more than 30 years rose to 42 per cent versus 28 per cent in 2021.
Planning remains a problem. The decline in approvals for residential projects witnessed in 2022 has continued, partly due to poor local authority resourcing. Both of the main political parties recognise planning is a bottleneck to growth in many sectors. For housebuilders, improvements cannot come too soon.
Rishi Sunak, the prime minister, has vowed that 1mn new homes will be built before the next general election, expected in 2024. His government also wants to make it easier to convert alternative properties into homes. Housebuilders doubt such a promise can be kept. For their shareholders, the rest of the year will depend far more on signals from the Bank of England and borrower appetite for long-term loans.
As the property obsessed continue to fret over the extent to which higher mortgage rates affect homes sales, Lex suggests investors take a look not only at the outlook for sales but at the multiples on which housebuilders are trading. Barratt Developments, for example, trades on a multiple of 8.5 times expected earnings. That puts it at the lower end of the sector. Those who agree with Lex that UK houses prices are unlikely to crash may want to consider this stock as an alternative to Taylor Wimpey.
Uber: the meter’s running
The amount of money Uber has spent in pursuit of world domination is staggering. So are the fluctuations in its value. In 2010, the San Francisco company was valued at about $5mn. By 2019 there was talk of the company hitting a $100bn market valuation. Shares fell in the wake of its initial public offering, however, dragging its market capitalisation down. Investors got tired of watching the company burn through money as it tried to expand into food delivery, flying taxis, freight and more. By early 2020 it was valued below $35bn.
Now, things are looking up. After a year of belt tightening, Uber has not only reported positive cash flow and net income but operating profits. That means it is not just recording profits because its investments in other companies have done well, but because its core business is breaking even. It has been rewarded with a market value of nearly $95bn.
Lex applauds financial prudence. We’re not keen on the idea of flying taxis anyway. But we caution that the sudden excitement over Uber shares risks overshadowing the company’s fraught relationship with its own drivers.
Two years ago, Uber was forced to reclassify all UK drivers as workers, meaning they receive holiday pay and other benefits. This year, drivers in New York held a strike after Uber sued New York’s Taxi and Limousine Commission for approving a raise and fare increase that was intended to account for the rising cost of living. Uber may hope that driverless car technology will eventually put a stop to such disputes. But those days are way off in the future. In order to maintain a good service, Uber may have to hand over a bigger share of fares to drivers. That means those newly positive operating profit numbers are still under threat.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
