What: The market has digested the centrepiece of today’s Budget – a pledge to dramatically boost homeownership – and the biggest winner seems to be the estate agents. The homebuilders themselves including Barratt Developments and Persimmon have seen no uplift to their share prices from the government’s $44bn 5-year plan to boost capital funding, offer more loans and guarantees and ultimately to build 300,000 homes in the next 5-years and to eradicate stamp duty on homes costing less than £300k.
In fairness, the loans and guarantees scheme will not have such a big effect on the larger homebuilders, but even some of the smaller ones have seen the jump they made on the announcement of the measure give way as investors’ weigh up what it really means. There is a chance that this plan could actually backfire for the government. By scrapping stamp duty on homes costing less than £300k and only applying stamp duty on £200k for homes costing £500k in one fell swoop, the government could pump up demand for homes costing less than £500k. The consequence of this move may cause a sharp rise in prices ultimately making the housing market even less affordable for young people and potentially causing a further boom in the buy-to-let industry.
Thus, by the time the 300,000 homes are built next year the market could be too overheated, thus lowering demand, which is bad news for the homebuilders.
How: The big winners could actually be the large estate agents with national branch networks, and indeed Foxtons has seen its share price rise today as a result of the Budget. Foxtons share price has had one of its largest daily moves of the year, as you can see in the chart below. It is up some 6.3% today, which is more than 12x the gain on the FTSE 100, and this is helping the estate agent to recover after the 7.7% decline in the past month. The consensus analyst rating is to sell this stock, but will today’s Budget actually trigger a re-rating by investment bank analysts and some buying interest? If yes, then there could be plenty of upside for Foxtons’ share price to come. Now that the share price is through its 50-day sma at 71.68, this opens the way for a move back to 80, and then 81.97 – the 100-day sma. However, we need to see this stock close above 71.68 for us to remain optimistic on this stock in the short term.
Source: City Index and Bloomberg