House builders struggle with double whammy of bad news

It was a double whammy of bad news for the house builders as data showed that UK construction suffered its worst month in a decade and that house price growth fell to a four-month low.

It was a double whammy of bad news for the house builders as data showed that UK construction suffered its worst month in a decade and that house price growth fell to a four-month low. 

The UK construction pmi dropped to just 43.1, well below the uptick to 49.5 forecast (a figure below 50 indicates contraction). The sector recorded the lowest level of activity since the financial crisis as Brexit uncertainty prevented firms from investing for yet another month. 
Up until now home building had been underpinning the sector, compensating for the decline in commercial building and civil engineering. However, June saw housebuilding decline for the first time in 17 months – a worrying sign.

Adding to house builder’s misery, Nationwide reported that house price growth was 0.5% in June, below 0.6% recorded in May and the worst level since February’s 0.4% growth. With so much uncertainty over Brexit households, like businesses are quite simply not willing to make such a large financial commitment, unless its absolutely necessary. 

The problem is that the challenging conditions, economic and political uncertainty are unlikely to be going anywhere fast. With both Tory candidates supporting a no deal Brexit and the potential for a general election the uncertainty will be with us at least until Q4. 

On the plus side, mortgage approvals are remaining relatively stable and the jobs component of the pmi report shows that workers aren’t being laid off. This could mean that we see a revival in the sector towards the end of the year should Brexit be delayed again.

Persimmon Levels to watch:
Housebuilders have dropped lower, even as the broader market moves higher. Persimmon is trading 1.5% lower. The chart shows strong bearish momentum. Should Persimmon break through 1912p then we could see the price fall towards its year to date low of 1825p. On the upside we would want to see a break above 2080p to confirm a bullish break, opening the door to 2125p.

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