U.K. Homebuilders Reach Pre-Brexit Level as Fear Seen Overdone

  • FTSE 350 Household Goods & Home Construction Index rebounds
  • ‘It’s been a nice dip to buy into’: London Capital’s Lawler

A builder uses a nail gun on roof timbers at a construction site in Weston-Super-Mare, U.K.

Photographer: Chris Ratcliffe/Bloomberg

Looking at U.K. homebuilding shares this week, you might think the Brexit vote never happened.

More than seven months after the country voted to leave the European Union, the stocks on Wednesday closed above the level last seen before the decision. Investor concern that Britain would face economic disaster sent those shares plunging 14 percent in the two days following the referendum. Since then, investors have realized the concerns were overblown, analysts said.

“It’s been a nice dip to buy into,” said Jasper Lawler, an analyst at London Capital Group. “Fears of imminent economic collapse drove the extreme reaction in homebuilding shares post-Brexit. As those fears have been proven unfounded, the shares have been the biggest beneficiaries.”

Consumer spending and the dominant services industry have kept the U.K. economy’s motor running since the secession vote, together with monetary easing by the Bank of England -- confounding economists’ expectations of a sharp slowdown.

Those who predicted an immediate hit to growth were criticized by pro-Brexit campaigners for being too pessimistic. Last week, central bank policy makers said that while inflation will breach its 2 percent goal as soon as this quarter, price growth is unlikely to get out of hand.

Helping sentiment are strong home completions and revenues for several members the FTSE 350 Household Goods & Home Construction Index including Redrow Plc, Crest Nicholson Holdings Plc, Persimmon Plc, Taylor Wimpey Plc and Bellway Plc, all of which have reported results that include the period after the June 23 vote. That has prompted some analysts to boost their estimates for the year.

Not everyone is convinced. London-based City Index analyst Ken Odeluga points to the drop in U.K. home prices in January as a worrying sign. The data, which saw values post their first monthly slide since August, underscored predictions for a slowdown in housing demand and pressure on annual house-price growth in 2017.

For now, the sector is proving resilient, with the FTSE 350 homebuilders gauge up about 6.8 percent for the year. It rose as high as 17,264.96 on Thursday, and was down 0.7 percent as of 11:10 a.m. in London.

“Our view on the effects Brexit might have on the new-homes market continues to improve, and with no sign of deterioration to date, we no longer see a reduction in earnings as likely in 2017 for the sector,” according to Dublin-based Davy analyst Colin Sheridan.

    Before it's here, it's on the Bloomberg Terminal.