Attention Builders: Shocking Rate Hikes Devastate Profits, Leaving Builders in Ruins!

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Analyzing UK house price data is a dark 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 everything else. This makes it difficult to judge the precise impact of rising interest rates on buyers, sellers and builders.

It stands to reason that higher loan costs deter buyers and therefore result in lower home prices. This week, Nationwide revealed that home prices had staged theirs in July largest annual decline since 2009.

Meanwhile, sales and pre-tax profits of one of the UK’s biggest homebuilders fell in the first half of the year. The three digits seem to match. So why the shares in Taylor WimpeyDid the homebuilder in question rise when its results were released on Wednesday?

The answer is that between rising loan rates and declining numbers of completed homes, Taylor Wimpey’s findings showed that many 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% to £320,000. It is also expected to build 10,000-10,500 homes this year. That number is on the high end of previous guidance, though it’s less than the 14,154 homes built last year.

Sure, Taylor Wimpey had plenty of other grim figures to overcome. Bookings were below average and pre-tax profit fell below £238m, from £334.5m in the same period last year. The sales rate per store over the past four weeks was 17.5% lower than it was a year ago.

But due to tighter lending standards and lower transaction volumes, Lex doesn’t think the UK is about to experience a house price collapse on the scale of one following the 2008 financial crisis. The market is weaker, but not we expect homebuilders to face a slump in earnings.

Here’s another seemingly contradictory fact about the UK property market to back up this theory. Mortgage approvals for June showed a surprise increasedespite the highest interest rate in 15 years.

The cost of taking out a home loan now exceeds 6% for two- and five-year contracts. But young people are still desperate to get on the property ladder and homeowners are still eager to improve their accommodation. They are trying to get around higher mortgage rates by underwriting longer term loans. More than a quarter of Taylor Wimpey’s new buyers took out a mortgage term of more than 36 years in the first half of the year. By comparison, just 7% did the same in 2021. Other buyers with 30+ year mortgages rose to 42% compared to 28% in 2021.

Planning remains an issue. The decline in residential project approvals in 2022 has continued, partly due to scarce resources from local authorities. Both major political parties recognize that planning is a bottleneck to growth in many sectors. For home builders, improvements can’t come too soon.

Rishi Sunak, the prime minister, has promised 1 million new homes It will be built before the next general election, scheduled for 2024. His government also wants to facilitate the conversion of alternative properties into homes. The builders doubt that such a promise can be kept. For their shareholders, the rest of the year will depend much more on signals from the Bank of England and borrowers’ appetite for long-term borrowing.

As the property obsessed continue to worry about the extent to which higher mortgage rates are affecting home sales, Lex suggests investors take a look not only at sales prospects, but also at the multiples homebuilders are on. trading. Barratt Developments, for example, is trading on a multiple of 8.5 times expected earnings. This puts it at the bottom end of the industry. Those who agree with Lex that UK house prices are unlikely to crash may want to consider this stock as an alternative to Taylor Wimpey.

Uber: the meter works

The amount of money Uber has spent on its way to world domination is staggering. So are the fluctuations in the value of him. In 2010, the San Francisco company was valued at approximately $5 million. By 2019, the company was rumored to reach a market valuation of $100 billion. However, shares fell in the wake of its initial public offering, dragging down its market cap. Investors have grown tired of watching the company burn through cash as it tries to branch out into food delivery, flying taxis, cargo, and more. At the start of 2020, it was valued at under $35 billion.

Now things are looking up. After a year of belt tightening, Uber not only reported positive cash flow and net income, but also operating profits. That means it’s not just reporting profits because its investments in other companies have done well, but because its core business is breaking even. It was rewarded with a market value of nearly $95 billion.

Lex applauds financial prudence. We don’t like the idea of ​​flying taxis anyway. But we warn that the sudden enthusiasm for Uber’s stock risks overshadowing the company’s tense relationship with its drivers.

Two years ago, Uber was forced to reclassify all UK drivers as workers, meaning they receive paid holidays and other benefits. This year, New York drivers called a strike after Uber sued the New York Taxi and Limousine Commission for approving a fare hike and hike meant to account for the rising cost of living. Uber may be hoping that driverless car technology finally puts an end to those controversies. But those days are far in the future. To maintain good service, Uber may have to hand over a larger share of fares to drivers. That means those barely positive operating earnings numbers are still under threat.