Ben Laidler, global markets strategist at the investment and trading platform eToro, analyzes the evolution of homebuilders in the US and the UK. The former “benefit from higher mortgage rates, while the British need them to continue falling. “This transatlantic divergence occurs despite the similarities between the American and British real estate markets,” he points out.

HOME BUILDERS:

U.S. homebuilders have outperformed even the NASDAQ over the past year, as limited inventory boosted new home sales despite high interest rates.

Meanwhile, British housebuilders have recently recovered ground, with mortgage rates at record highs and valuations discounted, after significantly underperforming. Counterintuitively, American builders benefit from higher mortgage rates, while British builders need them to fall further.

This transatlantic divergence (see chart) occurs despite the similarities between the US and UK housing markets. Both have high levels of home ownership (65.7% in the US and 65.2% in the UK) and prices ($387,000 on average in the US vs. $357,000 in the UK).

And both have chronic deficits (only 0.43 homes/person in the US compared to 0.45 in the UK), with house prices rising again (5.4% in the US compared to 2.5% in the United Kingdom). Housing is consumers' largest expense and debt, and their greatest source of wealth.

EE:

The SPDR US homebuilders ETF has soared 46% in the last year, with large construction companies, such as Pulte and Lennar, among the big surprises of the year, as rising mortgage rates brought sales of existing homes to a screeching halt.

Currently, the market is at 85% and sales are at a decade low, which has driven demand for new construction. In this sense, the recent drop in mortgage rates in the US is a mixed blessing.

The standard 30-year fixed mortgage peaked at 7.8% in November and has fallen to 6.7%, while underlying valuations now sit at a 40% price-to-book premium, 1.7 times superior to that of the British builders.

UNITED KINGDOM:

Our basket of 10 British housebuilders, from Taylor Wimpey and Berkeley downwards, has lagged the FTSE 100 by 30% over the past three years. However, the recovery began late last year, when bond yields fell sharply as interest rate cuts loomed, and house prices quickly firmed.

Five-year fixed mortgage rates, the most common in the British market, hit a high of 5.03% in November, having risen from less than 1.5% at the end of 2021, while mergers and acquisitions They returned with Barratt's recent offer for its counterpart Redrow, with a 27% premium on the total shares.

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