The UK UK Index housebuilders sector is showing surprise weakness this morning (flat to down 12%) and this may be why.

Recent data on the state of the housing market suggests things aren’t half as bad as they could have been following the UK’s Brexit vote end-June. Wednesday saw UK Consumer confidence data improve, and Nationwide House Prices have seen gains accelerate. The assessment from the major housebuilders in trading statements has also been much more upbeat than expected, with a positive outlook attracting many back to what are still depressed share prices in YTD terms (down 5-25%) but strong gains and recovery momentum from the Brexit lows (+15 to +280%).

Today, however, we have had what may be the first bit of bad news from the sector with retirement housebuilder McCarthy & Stone (MCS) divulging that enquiries and new reservations since Jun 29 are in fact lower than for the first nine months of 2016. With cancellations also higher this is making a mockery of revenues +31% and a poor outlook has sent the shares down over 10%. Peer shares are weak as investors call into question the most recent end-Aug leg of the sector’s recovery rally. Are we set to see a delayed Brexit effect? Could MCS and retirees be the canary in the Brexit mine?

Furthermore, while much of the UK’s macro-economic data since Brexit has been surprisingly good, yesterday’s UK PMI Manufacturing jump back to growth may in fact be hiding the truth that pre-referendum caution and post-referendum panic led to purchasing managers cutting back on stock buying. But with markets not showing signs of collapse since, they may have merely started buying again to make up the shortfall. So, we may have seen an over-reaction in both directions that serve to offset each other. Meaning another correction could yet be due as things normalise. Let’s see if the more important PMI Services (services = 80% of UK GDP) shows a similar jump next week.

Mike van Dulken, Head of Research, 2 Sept