What's hitting the house builders?

House builders dominated the lower reaches of the FTSE, Persimmon -4%, Taylor Wimpey – 3.4%, Berkeley Group -3.4%, Barrett Development -2.7%.

House builders dominated the lower reaches of the FTSE, Persimmon -4%, Taylor Wimpey – 3.4%, Berkeley Group -3.4%, Barrett Development -2.7%.

1. Slowing house price growth
Since the referendum the housing market has as good as ground to a halt as potential buyers adopt a wait and see approach. Data on Wednesday showed house price growth slumped to its lowest level since 2013. Annual house price growth declined to 1.7% in January down from 2.2%. Slowing house price growth is just the latest evidence of Brexit impacting the economy. 

2. No deal Brexit
House builders fell sharply following the Brexit referendum and are expected to take a hit in the case of a no deal Brexit as consumer. As the chances of a no deal Brexit increased, with Theresa May requesting a short extension to Article 50 demand for housebuilders declined.  

3. Concerns over the use of leaseholds
Broad concerns over the use of lease holds are hitting the sector. Controversially, some buyers are being forced to pay big increases in land rent. A practise which is increasingly unpopular and one that the Housing Secretary will look into. 

4. Persimmon house quality in question again
The quality of Persimmon homes has once again been thrown into question. Fire barriers missing from homes, will add to concerns that Persimmon homes fall short of standards offered by the rest of the industry. 

5. Rate Rises?
Traders will look ahead to tomorrow’s BoE monetary policy announcement. No change to policy is expected as Brexit uncertainty is keeping the central bank’s hands tied. The central bank recently turned more dovish, which is supporting house builders. Low interest rates for longer makes mortgages more accessible. However, with inflation ticking higher to 1.9% and wage growth at its fastest pace since the financial crises, the central bank could be keen to hike sooner rather than later. This could put pressure on the sector.

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