Scan to Download ios&Android APP

UK house builders could be a short trade as data heads south

12:30, 25 May 2022

Share this article
In this article:
  • TSCOl

    2.5530 USD
    -0.015 -0.590%

Have a confidential tip for our reporters?

Decreasing mortgage rates or real estate values
The signs of a declining market could open the door for short traders – Photo: Getty Images

The foundations of the UK housing market appear to be slightly rocky lately. Data released on Tuesday showed that UK property sales were down in April, but house price surveys continue to show growth. 

Meanwhile, PMI data suggest increasing pessimism among construction sector executives. So what does this mean for housing stocks such as Persimmon (PSN) and Berkeley Group (BKG), and could there be an opportunity for short trading?

The UK housing sector has been all peaks and troughs of late. Data published by HMRC for the month of April showed that property sales were down over 10% compared to March, and over 13% versus 2021.

Persimmon PLC - PSN.L CFD

Market uncertainty 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said in a note: “The vertiginous peaks and troughs in house sales have started to level out, and while they’re still at a higher altitude than before the pandemic, it raises the question as to whether we’re heading for lower ground as the market starts to slow.”

The bad news has also continued for the construction sector. UK construction companies reported in May that the speed of recovery has lost momentum amid weaker new order gains, and that the sector had experienced its slowest rate of new order growth so far in 2022, as rising costs and economic uncertainty hit demand.

House prices are rising

But this grim picture has not been reflected in UK house prices. Within the Halifax house price data for April, it appeared the market had shrugged off rising mortgage rates and the cost of living crisis, as house price growth rose once again.

However, despite house prices rising, there is uncertainty in the market. Experts believe that house prices may fall, and this could offer an opportunity for short trading.

Shorting the housing market is based on speculating that house prices will decline, and short trading shares in companies within the industry.

Berkeley Group Holdings PLC - BKG CFD

When we look at Persimmon (PSN) and Berkeley Group (BKG)’s share price, Persimmon (PSN) has been down almost 25% year-to-date (YTD). As for BKG’s stock price, again it’s been down over 12%, but both stocks have rebounded in the past week.

So what opportunities are there for short trading?

Short trading

“With mortgage rates only just starting to climb to reflect the Bank of England (BoE)’s ongoing rate hikes, house price growth will slow sharply,” said Andrew Wishart, senior property economist for Capital Economics.

What is your sentiment on BKG?

36.99
Bullish
or
Bearish
Vote to see Traders sentiment!

Signs of a declining market could open the door for short traders, but that is all dependent on whether the price of homes falls – and house prices dropping doesn’t seem to be on the cards just yet.

The Nationwide House Price Index in the UK jumped 14.3% year-on-year in March 2022, the strongest increase since November 2004, and well above forecasts. But despite data showing rising house prices, experts still believe a decline is on the horizon.

Barratt Developments PLC - BDEV CFD

“We still think that the housing market is likely to slow in the quarters ahead,” said Robert Gardner, Nationwide’s chief economist. “The squeeze on household incomes is set to intensify, with inflation expected to rise further, perhaps reaching double digits in the quarters ahead if global energy prices remain high.”

The UK housing market is currently in a period of uncertainty. House sales demand and construction demand are both falling, but this is in stark contrast to rising house prices. 

However, experts do believe the price of homes will begin to fall – and that could offer an opportunity to traders who wish to capitalise on the decline.  

Read more

Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading