Given the complex economic backdrop (low economic growth, high interest rates, rising costs), UK housebuilder shares haven’t been great investments. The share price of Taylor Wimpey (LSE: TW.), for example, is down about 17% this year.
Could these stocks offer better returns in the future? Let’s take a look at City analysts’ share price and dividend forecasts for Taylor Wimpey, Persimmon (LSE: PSN), and Berkeley Group (LSE: BKG) shares to see what the experts think.
Taylor Wimpey
Shares in national housebuilder Taylor Wimpey currently trade for 101p. That’s about 15% lower than the level they were at five years ago. Analysts see the potential for a rebound however. Currently, the average price target’s 135p – about 34% above the share price.
Turning to the dividend forecast, the yield for the 2025 financial year is expected to be 9.2%. Add that the projected gain of 34% and total returns are expected to be higher than 40% over the next year or so.
Persimmon
Budget housebuilder Persimmon has really underperformed in recent years. Currently, it’s trading for 1,146p which is quite astonishing when you consider that it was trading above 3,000p a little over four years ago.
Now, analysts don’t see this stock rising back to 3,000p any time soon. However, they do see the potential for decent gains from here. Currently, the average price target is 1,539p. That’s about 34% above the current share price.
The yield forecast is about 5.4%. So again, total returns are expected to be attractive.
Berkeley Group
Turning to Berkeley Group, which is focused more on high-end properties, it’s currently trading for 3,722p. However, the average analyst price target is 4,428p – roughly 19% higher.
The yield forecast is about 4.2%. So total returns are expected to be healthy but analysts don’t quite see as much potential here relative to Taylor Wimpey and Persimmon.
Worth considering?
Looking at these forecasts (which should be taken with a grain of salt), analysts clearly see the potential for decent returns from here. When dividends are factored in, total returns in the medium term are expected to be high.
I can’t say I’m tempted to buy any of these stocks personally however. I do think conditions for the housebuilders should improve if UK interest rates continue to come down (rates were lowered by 0.25% last week). Lower rates could improve affordability and potentially boost revenues for these companies.
However, there are other issues that could limit profit growth in the years ahead. These include higher costs (eg materials and staff) and increased regulations. Note that Taylor Wimpey has been hit by soaring costs recently while Berkeley has warned about the impact of the Building Safety Levy, which is expected to be rolled out in September.
Of course, with these stocks, investors also need to think about the potential for a major economic slowdown. In that scenario, housebuilders can be some of the worst-hit stocks in the market because they’re so economically sensitive.
So while these stocks could produce some gains in the near term, they’re not for me. I think there are better – and safer – stocks to buy for my portfolio today.
