Are Taylor Wimpey shares a no-brainer buy today?

Taylor Wimpey shares have seemingly found a bottom at £1. So, should I be snapping up some of the housebuilder’s stock at this level?

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High mortgage rates and declining house prices have spooked investors in property stocks. As a result, the Taylor Wimpey (LSE: TW) share price has fallen by more than 40% this year. But with most analysts predicting a house market correction rather than a crash, I’m considering buying Taylor Wimpey shares.

Created with Highcharts 11.4.3Taylor Wimpey Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Moving downwards

The most recent house price indexes have shown weakness in the market. Consequently, the likes of Zoopla and the UK’s biggest mortgage provider, Lloyds, have predicted a slowdown in the housing market going into 2023. The same sentiment was echoed by brokers from Citi and Berenberg, citing affordability constraints.

Taylor Wimpey - House Price Data (Nationwide, Halifax, Rightmove)
Data source: Nationwide, Halifax, Rightmove

Mortgage costs as a proportion of income have increased. Thus, mortgage approvals have also taken a hit, and are at the lowest level since the aftermath of the Covid outbreak in June 2020. The impact of this can be seen at Taylor Wimpey as management reported a slight uptick in cancellation rates as well as lower sales and orders in its latest trading update.

Taylor Wimpey - Mortgage Apprivals For Future Borrowing
Data source: Bank of England

Mortgage rates to normalise?

Nonetheless, there’s some good news to celebrate. Despite house prices declining in the latest Halifax report, property valuations in the North East saw an increase. This is good news for Taylor Wimpey as it’s got quite a decent exposure to that area. This should serve to protect its top line a little more.

RegionsPercentage of land plots
Central & South West27.1%
Scotland, North East, North Yorkshire22.9%
Midlands & Wales20.8%
London & South East17.3%
North West & Yorkshire11.9%
Data source: Taylor Wimpey

Additionally, brokers Citi and Davy aren’t anticipating house prices to crash. In fact, they’re forecasting conditions to improve in the second half of the year. Mortgage rates are expected to normalise by that time and should provide greater visibility of market conditions. This could boost sentiment and improve prospects for cash returns and share buybacks for the FTSE 100 housebuilder.

To complement this, Citi is forecasting the Bank of England to start slowing its rate hikes from 75bps to 50bps this week. This spells good news for two reasons. The first is that this should translate into slower increases in mortgage rates, which could allow affordability to catch up. The second — and more significant for mortgage-payers — is that the terminal rate could be near. This could mean mortgage rates peaking or even declining.

Robust foundations

Here’s why I think Taylor Wimpey specifically is a buy for me. For one, its current and forward valuation metrics are trading at extremely attractive multiples.

MetricsTaylor WimpeyFTSE 100
P/E ratio614
PEG ratio0.2
P/B ratio0.91.6
P/S ratio0.81.3
Data source: Taylor Wimpey

The second is the strength of its balance sheet puts it in a robust position to weather the coming recession. With a debt-to-equity ratio of 2%, the builder has more than sufficient cash and assets to cover its current monster dividend yield of 8.9% with cover of 1.8 times.

Taylor Wimpey - £TW - Financial History
Data source: Taylor Wimpey

Moreover, the likes of JP Morgan, Berenberg, and Deutsche all rate the stock a ‘buy’ with an average price target of £1.36. That means if I buy now, I may be able to capitalise on a potential 33% upside, and that’s without hefty dividend payments.

There’s no shying away from the strong possibility that house prices could go lower. However, given the UK’s strong history of long-term house price growth, I see this is a rare opportunity for me to snatch up housebuilder shares like Taylor Wimpey on a no-brainer discount. Hence, I’ll be buying the stock when I’ve got some spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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