Housebuilders fall after report highlights "panic" over house prices
04-08-2014
By Ceri Jones
Housebuilders fall after report highlights "panic" over house prices
Housebuilders Barratt Developments (BDEV), Countrywide (CWD1) and Persimmon (PSN), and online estate agency Rightmove (RMV), fell by an average of around 3% today which has been attributed to a report by HomeOwners' Alliance which caused panic about the rapid rise in house prices across the UK.
The group said that more people now think excessive house prices are a "very serious issue". Most homeowners are now more worried about surging house prices than negative equity, and this sentiment is not limited to London but is spreading across the country, the Owners' Alliance poll of 2500-plus people found.
Still, it is hard to square why the findings should have so sharply pulled down the housebuilders' stock prices today. In terms of stoking the housing market, it should be a help, not a hindrance, that prospective homeowners in 10 out of the 12 UK regions are concerned about accelerating house prices and the scarcity of homes. Surely lack of supply is a very good sign for any product provider?
Perhaps lenders are suddenly planning to rein in mortgage approvals owing to fears of a housing bubble? However, the Help to Buy scheme has been extended to 2020 and the general economic backdrop is clearly improving, while the Chartered Institute of Purchasing & Supply's latest data portrays industry sentiment at its most upbeat since before the credit crunch.
Additional factors at play
There are almost certainly additional factors at play. In part the fall in housing shares will be a knock-on effect of the fall in tech stocks in the US as investors come to their senses about over-optimistic tech valuations, and all investors take a step back and try to not let sentiment outrun events.
It could also be a result of emerging capacity constraints in the building trade and delays in the supply chain. Building skills are in short supply and the availability of subcontractors had fallen at its fastest pace for 14 years, according to survey compiler Markit. Construction firms have also been having to wait longer for raw materials.
The third concern is the market conditions that will be created when the government exits from that other mortgage stimulus it has set up - the three-year mortgage guarantee scheme. Financial secretary to the Treasury Sajid Javid has tried to assure the market that mechanisms that will be deployed to phase out the scheme. At any rate, it is still some time away.
Meanwhile, there is every chance that the market could stop its recent escalation in a moderate fashion. Two recent surveys from Nationwide and Halifax building societies both found that although property values continued to accelerate last month, in London soaring by 18.2% in the year to March according Nationwide, both reports said there was evidence of a slowdown last month in the rate at which property values were rising.
Halifax even said property values fell 1.1% in March compared with February. So the market may not continue to escalate out of hand.
Barratt, in the firing line for any withdrawal of first-time buyer lending, was the biggest faller in the sector, tumbling 4.5% to 391.60p, against a 52-week high of 455.40p.