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3-year housing price highs point to growth for developers, builders

Australian capital city housing prices reached a three-year high in October as shown by RP Data-Rismark Daily Home Value Index. News stories of house price rises in Sydney and Melbourne are turning into hard statistical data and increased housing sales figures.

The aggregate data of the combined capital city dwellings climbed 8.2% year to date and 7.9% for the last 12 months to October, indicating a slight acceleration this year. Sydney and Melbourne are leading the group, up 11.6% and 7.8% respectively.

Third was Perth at 6.9%, although it was showing slight negative movements over the past quarter and month. Canberra, too, experienced negative growth in the quarter and month, yet edged out Brisbane in year-on-year growth by 0.1% at 3.5% versus 3.4%. Brisbane, which also includes Gold Coast data, has been moving up after being relatively flat since May this year.

Lower interest rates are driving the demand, yet due to the decreased volume of house listings, buyers are facing more competition in contract offers and auction bidders. Stock investors, though, can make their moves on the companies that supply and service the housing sector.

More buyers will be looking at new homes in new housing developments when established areas become too scarce and costly.  Home builders like AV Jennings (ASX: AVJ) and Devine (ASX: DVN) are two ASX-listed dedicated house builders, as well as land developers such as Peet (ASX: PPC) and Villaworld (ASX: VLW), which sell residential lots to builders and consumers.

Larger scale developer Stockland (ASX: SGP) has just announced the sale of its $116.4 million stake in FKP Property Group (ASX: FKP), with the proceeds earmarked for core business expansion and needs. Hitting a share price low of about $2.50 in August 2011, it currently stands at about $4 with a price-to-earnings (PE) ratio of 17.

Mirvac Group (ASX: MGR), which develops both residential houses as well as multi-unit dwellings, will be able to take advantage of the housing construction in capital city CBD areas. Just over the past 12 months to September 2013, non-house residential building orders jumped 31.9%. The trend is showing that new home owners are wanting to stay more in cities than going to the suburbs. The company saw a 9.4% increase in earnings per share in 2013.

Foolish takeaway

The housing market has already started its move, but is still in early stages, so investors who want to take positions now have not missed the boat. That doesn’t mean you should dive in head first; it’s time for delving deeper into housing stocks to find those which have solid financials and can build up sufficient growth momentum.

This first stage may just be a quick spurt, a reaction to hype and low interest rates. A strong housing recovery may itself be a prolonged event if the general economy doesn’t show firm growth itself.

Another great Aussie stock is also on the move now... Discover whether you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It's free, click here for your instant download!

 

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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