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Housebuilder shares: stamp duty holiday extension unlikely to drive breakout​​​​​​​​

UK housing stocks receive a boost in anticipation of a stamp duty holiday extension, yet uncertainty could continue to hamper the sector.

Rishi expected to announce three-month stamp duty holiday extension

Next week sees the Chancellor Rishi Sunak provide his latest budget announcement, with many prospective buyers facing an uncomfortable wait to see if their deal will go through in time to save a maximum of £15,000 in stamp duties.

That stamp duty holiday has done plenty to help prop up the housing market, with prices gaining 8.5% over the year to December according to the latest government statistics. However, leading house price index (HPI) surveys from Nationwide and Halifax both pointed towards a 0.3% decline prices in January as the likeliness of pushing a deal through in time to meet the March deadline fell. Today has seen widespread rumours of a three-month extension to that current stamp duty holiday, due to run out on 31 March. That has helped lift housebuilders, but the question here is quite whether that will be enough to justify buying such stocks.

Can housing stocks recover lost ground?

The FTSE 350 household goods and Home construction index provides a good proxy for the sector as a whole, covering a host of housebuilders and home improvement names. The weekly chart highlights the peak seen in July, with price turning lower after a rally into the 76.4% Fibonacci resistance level.

The index has struggled since then, with the index threatening to form a double top formation. While a stamp duty extension could reduce the risk of prospective buyers pulling out of ongoing deals, significant delays in the house buying process will likely mean that any boost is relatively short-lived. Thus the consolidation seen over recent months does reflect fears of a decline in housing demand and prices which are unlikely to go away with a three-month extension. With that in mind, the sector is likely to be held back by uncertainty irrespective of a potential boost from Rishi Sunak at next weeks budget.

In fact, it may be the case that markets are instead waiting to find out the reality of what the post stamp duty holiday housing market will look like before taking a longer-term view. As such, while we could see stocks within the sector grind out some short-term gains on the back of better HPI data, it seems likely that we will see the index lag somewhat until the longer-term outlook is clear.

Will sector provide good long-term hold?

Housing always provides an area of interest for investors, with the government always likely to favour the sector given how much personal equity is tied up in property. A sharp deterioration in house prices will dampen investment and spending, thus putting pressure on any chancellor to lift the value of those assets in a bid to encourage consumer activity.

While that pressure is lessened in times of economic strength, the recent Brexit resolution does provide one less hurdle for a sector that has seen appetite hampered by fears of a collapsein demand upon leaving the European Union (EU).

That issues is gradually fading, yet the fear of what could come once this stamp duty relief measure is withdrawn does raise another reason to be fearful. It is likely that once market stability is found later into the year, we will likely see a new wave of more risk-averse buyers that perhaps previously found reasons to believe the UK housing market was on the verge of collapse.

The chart below highlights the fortunes of many within the sector, where Bellway and Taylor Wimpey lag their peers. The consolidation seen over recent months may still continue for the time being, yet the long-term picture is likely to be resolved to the upside as the nations love affair with housing becomes evident once again.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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