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FTSE 100 futures dragged down as UK real estate market collapses

As the UK property sector grinds to a halt, FTSE 100 futures have slumped, with real estate and construction companies particularly hard-hit.

FTSE 100 Source: Bloomberg

As the litany of dire economic forecasts continues to gather momentum, it is clear that the UK's £1.66 billion property market is not immune to the economic havoc being wreaked by the Covid-19 virus.

The FTSE 100 index has slumped to 5,641.03, down more than 170 points today, with one of the major causes being the revelation that more than 500,000 house sales will stall or be cancelled completely in 2020.

This unprecedented development means that, for the first time in living memory, the UK's property market has effectively ground to a halt, as social distancing restrictions mean that transactions have become virtually impossible for the time being.

Let's take a closer look at what this means for the FTSE 100 more generally, and which components have been particularly hard hit.

FTSE 100 property giants rally slightly after slump

While few companies on the FTSE Futures index have emerged unscathed, the multi-billion-pound property giants on the list have been particularly hard hit. However, all of the main components have seen a slight rally after an initial slump following the news of the UK property market's woes.

After property development giants Barratt Developments, Taylor Wimpey, and Persimmon all lost between 5% - 10% in trading yesterday, all rebounded somewhat in the first half of the day but fell to levels barely changed from the previous day's, as the index closed. This reflects the bruising losses flowing out of the FTSE 100 more generally today.

UK property analysts and estate agency Rightmove recently said that demand for new housing will likely continue ‘dwindling’, and that the UK currently ‘does not have a functioning property market’.

Given that the UK property market represents one of the most significant sectors of the British economy, with investors both at home and globally sinking hundreds of billions of pounds into it, these kinds of morbid claims do not bode well for the wider FTSE Futures Index.

Potential long-term impacts

Housebuilders and airlines have been the UK businesses worst hit since the coronavirus crisis began, with industry figures from both warning of potentially terminal losses. The dramatic revelations about the UK property sector yesterday will have lasting repercussions on FTSE Futures, with investor confidence likely taking a hit, despite recent gains in the stock market over the past couple of weeks.

If the UK housing market doesn't bounce back soon, the knock-on effects for other industries with a major presence on the FTSE will be keenly felt. The insurance industry, which is made up of heavy-hitting FTSE components such as Admiral, RSA Insurance, and Aviva, is heavily dependent on the health of the property sector, meaning that future falls should be expected here in the near and long-term.

Leading mortgage providers, which also happen to be some of the world's largest financial institutions and include the likes of HSBC, Barclays, and Lloyds, have already expected this major revenue stream to dry up completely for the foreseeable future.

Unlike other sectors on the FTSE 100 that are well-placed to quickly bounce back once the disruption is over, the property sector faces a long and painful crawl back to normality, since the predicted recession we are facing will likely suppress homebuying activities well into the future.

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