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.