Builders pray bounce is no house of straw grow silly beards

Taylor Wimpey's shares jumped 5 per cent yesterday after annual results beat expectations as investors continued to bet Britain's battered housebuilders are on the road to recovery.

The company's shares have gained 30 per cent this year, compared with a rise of less than 2 per cent in the wider market, and have almost doubled since the end of October.

Taylor Wimpey swung to a £75m pre-tax profit, excluding exceptional items, last year after suffering a £96m loss in 2009. In an upbeat statement, the company highlighted improving margins, and forecast that house prices would remain stable or even increase slightly this year. Peter Redfern, the chief executive, said the company's improved prospects were down to an internal overhaul and favourable market conditions. Construction has switched to houses and away from apartments, of which Taylor Wimpey built too many during the boom, he admitted. That move, along with cheaper land prices, has let the company build fewer properties for more profit.

Like other housebuilders, Taylor Wimpey has also launched shared equity products to help its buyers finance property purchases.

In the wider market, Mr Redfern said there was a shortage of property for sale as second-hand sellers sit tight. Despite surveys showing house prices falling, year on year, he predicted that prices would be stable, with any falls in low single digits.

"The downside risk hasn't gone away but there's also 2 or 3 per cent upside risk," he said. "There's pent up demand out there and mortgage-lending is heading in the right direction."

Taylor Wimpey's rivals, Persimmon and Barratt, have also posted strong gains since hitting autumn lows. On average the sector's shares have surged about 40 per cent since late November.

However, HSBC analysts warned yesterday that the revival was close to its peak and urged investors to sell builders' shares before austerity measures hits the market.

"We believe the recent trend of tighter supply only offers temporary support for house pricing. We expect many homeowners to be forced to downsize in 2011 as disposable incomes are squeezed by tax rises, benefits withdrawal and inflating costs of living," the bank said.

Barratt, Britain's biggest housebuilder, has also warned that the market is fragile.

"All it needs is a raft of bad news and we will see sales fall right back again," Mark Clare, Barratt's chief executive, said last month.