Shares in UK housebuilders have suffered a real drubbing today (down as much as 5%). This may surprise many of you, especially in light of all that positive housing market data and decent results/outlook from the big name builders since the referendum. However, there are a handful of reasons that can explain today’s negative share price performance within a sector much-loved by retail investors.

1. A more balanced view from the Bank of England (BoE) yesterday regarding the outlook for interest rates (economic growth has held up much better than expected) reduces the probability of another rate cut and/or more stimulus. With high street banks not exactly lending to you and I at rates as attractive as the historical lows the BoE charges the banks themselves, any increased probability of higher UK interest rates is a negative for property market sentiment. Think of all those on Standard Variable Rates and with tracker mortgages.
2. A very weak pound sterling (GBP) has sent UK inflation expectations through the roof, it now being much more expensive to import goods from abroad. Pressure on household financing could easily hold back not just those already very stretched first-time buyers eyeing a new build but existing homeowners too, trying to climb yet another rung on the UK’s fabled win-win property ladder.
3. Estate agents expect a steep rise in rents due to government measures to curb second homes and buy-to-let (stamp duty surcharge). Less supply may hinder chains and thus transactions involving new builds.
4. Yesterday’s UK High Court ruling on Prime Minister May’s ability to trigger Article 50 without a Parliamentary vote may have ever so slightly increased the chance that Brexit never happens. More likely though it merely delays the PM’s goal of pulling the trigger by end-March and/or leads to better negotiations and less chance of a “hard Brexit” deal. Whatever the outcome, adding yet another layer of near-term Brexit complexity and uncertainty (Supreme Court appeal ruling in early Dec) for consumers, homebuyers, investors and businesses alike is simply not something we need right now.
5. UK House Price data is famously mixed, with a handsome selection of measures to pick and choose from. However, Nationwide suggested Wednesday that October saw the first monthly price stagnation in 15 months, and slowest annual price rise in a year (sales transactions -10% YoY). This means concern that a hitherto rising and buoyant market may finally be tiring, with aforementioned government measures and longer-term uncertainty about growth and interest rates beginning to bite.

UK housebuilders are extremely popular amongst both traders and investors. This stems from most owning at least one house, if not more, so they understand the drivers (interest rates, unemployment, wage growth, GDP) that influence property demand. When the economy is firing on all cylinders, it’s simple. However, with politics currently playing an inordinately more significant role in market sentiment (on both sides of the Atlantic), and Bullishness potentially becoming Bearishness in a flash, it’s paramount you understand ALL the drivers that influence ALL share prices All the time.

Accendo’s award-winning trading research (get access here) and dedicated trader relationship setup exists to allow you keep your finger right on the market pulse, to understand what’s going on and allow you make the right decisions at the right time. If you are not currently getting such a service, you need to ask yourself why not? It doesn’t cost any more; in many cases it even costs less! Come on, what are you waiting for? Get on board.

Mike van Dulken, Head of Research, 4 Nov