Barratt Developments (BDEV) was one of the top stocks on our ‘zero sells’ list. Brokers are still unanimously bullish on the company’s shares despite the whole house building sector taking a big hit after the UK’s vote to leave the EU (If I ever have to write that phrase again, I swear I’ll…). But unfortunately in the ensuing chaos Barratt Developments has picked up a ‘sell’ rating.

Shock horror!!

The big question though is: Are house prices really set to fall by 20% as a result of Brexit?

Why do prices fall? Because there’s not enough demand to meet supply. That’s it. Why do prices rise? Because there’s not enough supply to meet demand and foreign oligarchs buy most of London and leave it empty – and that is the situation in the UK’s housing market. It’s the status quo in part because we’re programmed to take a certain path through life, a large part of that path involving ‘getting on the property ladder.’ Buying a house is the done thing because house prices are always rising – property is the only investment that never goes down (so they say).

And there’s no reason for that other than the fact that our kids will have kids, they’ll maybe get married and buy a house, have kids etc., ad infinitum. Things are buoyed further by the fact that many don’t marry these days and more marriages fail because it’s more socially acceptable for that to happen, which is a good thing and makes people ultimately happier.

This all means more people looking for homes and thus, because building new homes takes longer than moving out of the marital home, fewer homes available on the market. What’s more, the foreigners are seriously into investing in the London property market for purely investment purposes. It’s madness, but will Brexit really make it all stop and house prices plummet, like I’m sure many a first time buyer would like? Hell no! The term ‘free lunch’ springs to mind.

The notion of a 20% fall in house prices gets me and no doubt a lot of other young people wet with excitement, but for that very reason I know it’s impossible. And thus it seems that the sell-off in the UK’s house builders is equally ridiculous. I’m not at all surprised to see Barratt Developments stock now has one ‘sell rating’, but it’s not time to sell it.

In fact, while the most bearish broker is touting 5% downside, the average of all 12-month target prices is still some 30% above the current share price. If the analysts are worth their salt (which they may not be in this case, for no particular reason), the risk/reward on Barratt Developments shares could prove highly attractive to many a cynical speculator.

Augustin Eden, Analyst (13 July)