House Builders in Focus As House Prices Rise
Fiona Cincotta August 13, 2020 5:29 PM
House prices are on the rise yet house builders remain depressed.
House prices are on the rise, at least for now. According to Nationwide’s house price index, house prices rose 1.7% in July offsetting at -1.6% fall in June. On an annual basis house price growth recovered 1.5% from -0.1% last month.
RICS also reported that their house price gauge turned positive for the first time since the start of the coronavirus crisis.
Why are house prices rising?
There are three factors supporting house prices in the near term. Firstly, the stamp duty holiday announced by Chancellor Rishi Sunak, which is due to conclude in March next year. Secondly as people reassess their home needs in light of lockdown and the coronavirus pandemic they are looking to move. Thirdly pent up demand.
However, there is a risk that these factors prove to be a false dawn. We saw earlier in the week that labour market conditions in the UK are weakening as a result of the coronavirus pandemic and as government support is slowly withdrawn. Expectations are for unemployment to reach 7.5%, it currently sits at 3.9%. If, as expected, the labour market does weaken considerably then we can expect this to dampen activity in the housing market in the coming quarters.
Bellway reported earlier in the week, announcing that it expects profits to fall in 2020 and beyond owing to the coronavirus crisis, which led to reduced productivity and higher costs. Housing completions fell 31% however there are signs that demand is slowly picking up. The dividend will only be returned when Bellway consider that there is sufficient clarity on the economic outlook.
The rally from the mid-March low has stalled. After picking up from 1735 to a recent high of 2035p in early June, the share price has come under mounting pressure. Trading below its 50, 100 and 200 daily moving averages on the daily chart and below its ascending trendline, suggesting there could be more downside on the cards.
Support can be seen at 2320p yesterday’s low. A break through here could see the door open to 2200p a level last seen in April.
On the flip side, resistance can be seen at 2530p the 100 sma, 2575p ascending trendline and towards 2750p
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.