Within the past few days it has been revealed that this month, asking prices for homes across Britain fell for the first time this year. For the homebuilders, Persimmon (LSE: PSN), Barratt Developments (LSE: BDEV), Taylor Wimpey (LSE: TW), Berkeley Group (LSE: BKG) and Bellway (LSE: BWY), this is a worrying decline.
The question is, however, does this decline signal the peak of the housing market? Are home prices set to fall for the rest of the year? Is it time to sell the homebuilders?
A combination of stricter lending rules, as well as speculation about rising interest rates have been blamed for weaker house prices. Prices fell 0.8% overall this month, with the North and the East Midlands leading the decline. Specifically, north of London prices dropped an average of 1.9%, while prices in Greater London dropped only 0.4%.
These declines are worrying. The property market outside of London has been weaker than the market within the capital and as a result, the recovery in prices was expected to be more sustained. Indeed, a slowdown in London’s property market was to be expected, considering recent gains. However, falling prices in the north of the country, where the market has only just started to recover, is a concern.
Nevertheless, industry experts were quick to brush off the fall, blaming it on the summer weather and events like the World Cup.
Running out of supply
Some analysts have been quick to use this data to support their argument that the UK housing market is running out of steam. It would appear as if the opposite is true.
For example, according to figures supplied by online estate agent eMoov, it would appear as if the housing market is rapidly running out of supply, which should support long-term growth.
According to eMoov, data suggests that within many regions across the UK, more than 50% of the housing stock put on the market during the second quarter has been snapped up.
Further, some regions are reporting that more than 70% of the housing stock that came to market during the second quarter has been acquired. According to the founder of eMoov, when more than 65% of housing stock is snapped up within one period, demand is exceeding supply.
This data signals that there is strong demand for housing, and while prices may be taking a step back, demand continues to increase.
So, based on the above data it would appear that as of yet, it’s not time to turn your back on the homebuilders. Demand for affordable housing continues to increase and the homebuilders are set to profit from this.
Rupert Hargreaves has no position in any shares mentioned.