Housebuilder's Share Price Drop - No Real Surprise

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The news that speculation over another interest rate rise is affecting share prices for major housebuilders is no real surprise and not to be feared.

We are all now getting accustomed to the interest rate rises, which had started to flatten out with the last rise of 0.25% instead of the previous 0.5% increments, and house owners and purchases are beginning to accommodate the rise in mortgage costs which realistically is getting back to a level that we might expect for the long-term. Construction and in particular housebuilding is cyclical, and housebuilders over the past 8-9 years have had a very profitable time, ably assisted by government support such as the Help to Buy scheme which has now come to an end. Inevitably housebuilders will draw in their horns during periods of uncertainty such as that caused by the Pandemic, the Ukraine war and all of their knock-on effects.

Looking for example at the results of Persimmon Homes over the years, share price levels are now at a level equal to 2014 and prior to that in the 'boom time' of 2007, albeit we have had some inflation since then!

These companies can accommodate fluctuation, they plan for this and so although shareholders might see a short term dip, in the longer term they are generally a solid investment. We have peaks and troughs and we are in a trough, but underlying this the construction industry is still buoyant just re-focussing.

PAPA SAYS - Headlines such a this can cause a lot of damage to the industry when the economy is recovering from a sensitive position, look between the lines at the real indicators before believing all that they say.

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