The weeks leading up to the UK election saw significant uncertainty dominate the housing sector, where the Labour party’s promise of a mansion tax and capped rent increases threatened to derail demand for housing. The stagnation of UK house prices since November meant that much of the enthusiasm among investors may have started to cool somewhat. Yet historically, we have seen house prices plummet on average 20% for the three-month pre-election period, since 1979. Thus the ability to keep its head above water proves that perhaps we are due a particularly strong rebound in house prices for the months following. This positive outlook does seem to be shared by the markets, seeing the share price of some of the key players reaching new multi-year highs in May.
The company saw over 13% added to its share price in May, much of which was attributed to the election effect of seeing David Cameron secure another term on the 8 May. Since then we have seen a strong appreciation in share price and on Friday we finally saw some form of significant selloff for the share. Now, I personally believe that this will be a short-lived phenomenon and thus any continued move lower would be an opportunity to buy in at a better price.
The price has moved below the 50-hour SMA for the first time since before the election and it is clear that for now, this is providing consistent resistance. The recent downside bounced off the 23.6% Fibonacci retracement and thus any further movement towards the downside would likely run into support around £5.8283.
With the daily MACD coming off the highest level seen following the 2007 financial crash, it is clear that we could see the price ease back a little. However, with house prices likely to continue rising and a strong multi-year uptrend in place, I expect to see a return to £6 and on to £6.50 in the coming months.