Brexit has certainly caused a storm among homebuilders in Britain, and considering they appear to do such little trade it seems very peculiar. Buyers need to decide whether they foresee a recession in the UK.
The 4 major builders listed in the FTSE 100 – Persimmon, Barrat Developments, Taylor Whimpey and Berkeley Group – have suffered huge losses and are down about 35%.
Some have argued that this is more of a correction, and that shares were overpriced and have been for a while, especially when comparing underlying book values.
There are plenty of reasons why the share price was so high, and its easy to understand considering the current state of the property market. House prices seem to keep rising, unemployment is low, base rates are at historical lows and alack of new houses being built. These are all chunky bits of machinery that don’t change overnight.
But above all this, home builders have been pumping out cash. Investors looked at their valuations through the optics of dividend yields, and not book price which made them seem cheap.
Because Brexit has been seen a potential ‘brakes on the system’ it has appeared obvious to many that people would behave in the same way to property transactions, with early reports of buyers dumping transactions. Reports from site managers stated that they witnessed long queues and strong property reservations.
It has been more frustrating for property agencies who build their businesses upon a platform of property sales fees.Despite this they haven’t yet felt the need cut prices, because business can always be slow, but it’s when it stops the party stops. Infact, sales outside London hasn’t really slowed at all and companies like Redrow have even upgraded their profits forecasts.
Things might change if local markets follow London in its slowdown, but a slowdown in growth seems far more likely than than a full blown recession.
