The Taylor Wimpey share price jumped on Tuesday after the relatively strong UK home price data. The stock rose by more than 2% and ended the day at 176p. It has risen by more than 8% this year. Other homebuilders like Persimmon and Barratt Developments have also done relatively well.
What happened: Taylor Wimpey is the third-biggest homebuilder in the UK after Barratt and Persimmon. The company sells more than 15,000 homes every year and makes billions of revenue. Therefore, Taylor Wimpey does well when home prices rise.
In a report on Tuesday, Nationwide reported that home prices in the UK rose at the fastest pace in seven years in May. Precisely, the house price index rose by 1.8% in May compared with April. The average house price rose to 243,000 pounds, up by about 24,000 pounds in the past 12 months. This is ironic since house prices tends to slide during a recession,
The recent strength of the UK house prices is mostly because of actions by the Bank of England (BOE). The bank has lowered interest rates and launched a quantitative easing that has injected liquidity into the economy. The government has also announced a stamp duty holiday that has incentivised people to buy homes.
The challenge for Taylor Wimpey and other home builders is that the plan is set to end this month. This could lead to demand issues since people who wanted to buy homes did so during the tax holiday period.
Taylor Wimpey share price forecast
The daily chart shows that the Taylor Wimpey share price has been under pressure as investors price in lower demand in the UK. The shares have formed what looks like a head and shoulders pattern and are currently slightly above the 23.6% Fibonacci retracement level.
Therefore, in the near term, the shares will likely resume the downward trend as bears target the 38.2% retracement level at 157p, which is about about 10% below the current level. However, a move above the right shoulder at 185p will invalidate this trend.
In my last article, on Tylor Wimpey in April, I predicted that the stock would drop to 160p.