Who Will Benefit From the Housing Market Recovery?

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LONDON -- Upbeat assessments of the U.K. economy are few and far between. The latest quarterly report from the influential ITEM Club predicted a modest 0.6% rise in GDP this year and says the housing market is now seeing a "win-win of rising disposable incomes and increasing affordability factors."

The house price-to-wages ratio is 4.5, down from 2007's peak of 5.8, and the ITEM Club sees disposable incomes gaining from rises in personal income tax allowance and strong employment levels. Affordability is increased by the government's "Help to Buy" scheme. The ITEM Club thinks one million families will move house this year, up a quarter from recent levels, driving higher house prices, additional housing-related spending and ultimately construction.

That's good news for the house-building sector, which has already enjoyed a typically seasonal spurt in share prices amplified by government initiatives to boost lending. But other companies should benefit, too...

DIY chain B&Q's owner, Kingfisher  (LSE: KGF  ) , might have the most to celebrate. It has had a difficult time with weak consumer confidence in the U.K. and France, its main markets. Last year's poor summer helped push sales down 2.4%.

CEO Ian Cheshire has done much to strip out costs. That should have increased operational leverage so any recovery in sales volumes should boost profits significantly. The prospective price-to-earnings ratio of 12 is based on a forecast 13% decline in EPS, but an upturn in the housing market could make that look overly pessimistic.

Home Furnishings
The Home department of Marks & Spencer  (LSE: MKS  ) is a popular destination for home-buyers. The retailer unhelpfully combines clothing and home in its "general merchandise" reporting segment, which makes up half its business. While its food segment has been flourishing, M&S's poor showing in fashion sales has been the focus of attention. That's likely to be make-or-break for CEO Marc Bolland, but healthy homeware sales would be a welcome boost.

Increased house-buying is good news for the mortgage providers. Lloyds Banking  (LSE: LLOY  ) had an 18% share of the market last year, down from 22% just two years earlier, though it claims a 25% market share of first-time buyers.

At RBS  (LSE: RBS  ) , mortgages contributed nearly half of the UK Retail division's income, with the bank taking 10% of new business. Barclays  (LSE: BARC  ) CEO Anthony Jenkins has identified U.K. mortgages as one of the priority areas of investment in the bank's new strategy.

Hopefully better times are just around the corner, but if you're looking to invest in a growth story that doesn't depend on recovery in the housing market I suggest you have a look at "The Motley Fool's Top Growth Share for 2013." It describes a company that has increased or held its dividend every year since at least 1988, and whose earnings per share have gone up by 44% since 2009. You can download the report by clicking here -- it's free.

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