Most of the big, listed UK housebuilders are trading at levels 30%-40% below their pre-pandemic peaks. It seems that more cautious valuations are being applied to these business, despite robust profits, strong balance sheets and fat order books.

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As a consequence of this slump, there are some attractive dividend yields on offer at the moment. My subject today, Taylor Wimpey (LON: TW), currently boasts a 2022 forecast dividend yield of 7.8%.

One possibility is that this is a classic cyclical trap. The shares look cheap because profits are near a cyclical high – and are about to fall.

The other option is simply that this sector does offer value at the moment. Stockopedia’s algorithms appear to agree. Taylor Wimpey currently boasts a StockRank of 94 and a Super Stock style.

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As safe as houses?

It’s hard to invest in housebuilders without taking a broader view on the housing market. Rather than trying to make predictions, myself, I’ll share with you some recent house price data from Nationwide and Rightmove.

Both organisations’ most recent house price reports appear to confirm that house price growth is slowing, but still strong. Nationwide reported annualised growth of 10.7% in June. Rightmove is predicting 7% for 2022.

Both agree that demand remains strong and is being constrained by limited supply.

Although Rightmove says that first-time buyers’ average mortgage payments have risen by 20% so far this year, data from Nationwide suggests that affordability for this key group is was only slightly worse than the long-run average in Q2:

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First-time-buyer mortgage payments as a % of take-home pay. (Source: Nationwide House Price Index)

Property bears predicting a major UK housing crash might also want to consider this chart from Nationwide. It shows that UK house prices have only fallen in a handful of the last 70 years:

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Annual UK house price growth, 1953-2021 (Source: Nationwide House Price Index)

Are we heading for one of these periodic slumps? I don’t know. But I’d note that current house price inflation has not reached the rampant levels that have come before previous slowdowns.

My guess would be that a period of stagnation is more likely. That might not be too much of a…

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