Housing stocks are starting to move, which one is worth your money?

AV Jennings, Stockland, Devine and Mirvac have all moved sideways since 2009, but are challenging that year’s highs now.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mortgage interest rates are at lows not seen since the 1960s, so you would think that the housing market would fire up, and take off like it did in the early- and mid-2000s. Still, that hasn’t happened yet. Sydney and Perth properties are warming up, and auction clearance rates are increasing. The lingering effects of the GFC, weak international economic data, and a slump in the Australian mining industry is dampening the appetite of investors and buyers for property.

The Dow Jones Industrial Average (Index: ^DJI) has hit new all-time highs, leaving the 2009 GFC low far behind. The ASX All-Ords index (ASX: XAO) recovered back to 5,000 in 2011, yet since then has been held in a trading range. The high Aussie dollar has made it hard for exporters and domestic market businesses, mining expansion is slowing, and changing conditions in China have also had an effect.

Housing construction companies AV Jennings (ASX: AVJ), Stockland (ASX: SGP), Devine (ASX: DVN) and Mirvac (ASX: MGR) have all moved sideways since 2009, but are challenging that year’s highs now. When the housing market picks up, existing homes show the first movement, then the momentum moves to house and unit builders that are supplying new homes. When the next property boom does show itself, the sales go up and the profit margins expand.

Mirvac has better financials than the other three, more stable revenues over recent years, acceptable levels of debt, profit levels growing since 2009, and high net profit margins. One concern is that its quick ratio is below 1. The quick ratio is harsher than the current ratio (current assets divided by current liabilities) in that it subtracts inventories from current assets, so it is more of an acid test for a company facing cash flow problems.

Property booms start in capital cities, and then go out from there in waves. Being a unit developer, Mirvac would only be building in or close to CBD areas, and as a REIT it gets a fair proportion of revenue from investments. Based on stronger financials and recent performance, it would be best prepared for an upturn in the property market when the Australian economy improves and aligns better with US and international financial markets.

Foolish takeaway

Property is a lagging economic indicator because it is only when you feel you have enough extra money to pay for a home or investment that you actually buy one. Your income has to be stable and growing before you take the leap, and that is based on your company and the general economy doing all right. In contrast, the stock market is a leading indicator because traders and investors are always looking at what will happen six months to a year from now.

The US market is improving, Europe is starting to bottom out and even beginning a slight turnaround. When China stabilises, even at a lower growth rate, then the Australian economy will see more expansion. In the meantime, pent-up housing demand here will build up and drive the boom when markets are in sync once more.

More reading


Motley Fool contributor Darryl Daté-Shappard does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »