UK Housing Landscape Backs Recent Rally

The BOE's campaign to get inflation down has devastated the UK housing industry, but there have been some notable green shoots last month, with Persimmon and Rightmove in double digits, up around 14%.

Mortgages Coming Down?

On Wednesday, four of the UK's largest lenders said they would cut rates on fixed mortgage deals, with the average rate on new two- and five-year mortgages coming down slightly. The move comes after the surprise drop in inflation last month that has raised speculation that the BOE might be near the end of its rate hiking cycle. Those hikes have contributed to recent declines in house prices, with average home prices dropping 0.3% in July, according to Halifax.

The Halifax index also pointed to increased activity, which might be positive for listings company Rightmove. Last month, the company disclosed that rent demand remains high, with as many as 20 inquiries per available property. This more than doubles the rate before the pandemic. Higher home prices would presumably leave families with the need to keep renting. Data from Rightmove and Halifax shows that the most resilient area regarding prices and demand is northwest England and Scotland. Demand in London, however, is among the lowest.

Better Future for Housing?

On Thursday, Persimmon reported its half-year results with a positive tone, pointing to the historic undersupply of homes as a potential for growth in the long term, and expected to see completions increasing, which would support widening margins. Despite a 36% drop in completions this year, the average sales price increased. Still, profit was down 65% from the prior year. Persimmon's shares are down around 50% from their highs in the middle of the pandemic which has very low mortgage rates. But now, the company has renewed dividend payments, which could make it more attractive if the housing market continues to hold up.

On the other hand, Rightmove charges for listing properties, so the expected pick-up in activity could help the company in the future since it doesn't depend directly on the sales price of homes. However, in a sign of how the market is being pressured, UK property sellers were forced to cut prices this month for the first time this year. For now, Rightmove is facing the challenge of an undersupply in the market, with listings down 12% from before the pandemic, despite rising buyer demand, which has increased 3% since then.

Persimmon may have put a generational low in, following the potential completion of a long-term wedge pattern below quadruple digits at 950 GBX. Chances of the pattern’s conclusion are tilting to a bottom more than not, as a typical undershoot has been noticed under the lower wedge trendline and in addition to trading above the upper trendline as well.

If bulls surpass the first trough at 1360 GBX, the door to 1500 GBX will likely open up, exposing 1700 GBX and the next round resistance at 2k. Conversely, losing the regional and remote swing low at 1100 GBX could inspire short bets towards triple digits again,  with expected support into that territory being at 900 GBX handle.

Source: SpreadEx / PERSIMMON

Key Takeaways

The UK housing industry has been negatively impacted by BOE’s efforts to reduce inflation. However, there have been some positive developments, including the double-digit growth of companies like Persimmon and Rightmove following four major lenders announcing they will lower rates on fixed mortgage deals, potentially signalling the end of the BOE's rate hiking cycle. House prices have been decreasing, with London experiencing particularly low demand. Despite this, the housing market may have a better future due to the undersupply of homes and increased rental demand. While Persimmon's profits have decreased, they have renewed dividend payments. Rightmove, on the other hand, charges for listing properties and is facing challenges related to an undersupply in the market.