London-listed housebuilders slumped on Friday as investors woke up to news of a hung parliament, after PM Theresa May failed to get the seats needed to deliver a majority government.
With just days before Brexit negotiations are due to kick off, May has fallen short of the 326 seats needed to deliver a majority Conservative government in the 650-seat House of Commons, leaving the UK in political limbo.
Shore Capital pointed out that the UK housing market was already losing momentum with signs of growing caution by potential home buyers, adding that the uncertainty that is likely to follow this election result can only consolidate this. The brokerage noted that the housing market does not bear uncertainty well and said that with a number of question marks over issues such as what direction Brexit negotiations will take or which way housing policy will go, that uncertainty is likely to grow.
As far as housing policy goes, it said we saw a major volte face when May took over and we could see similar shifts if she steps down. In addition, the housing minister has lost his seat, which could have a further impact on policy.
The possibility that there might be another election in a few months' time could also cause buyer nervousness about policy, property tax and potential incentive levels, Shore said.
"This could very easily cause many potential buyers or movers to hold fire and cause the housing market slow more materially. This would likely lead to a further deceleration of house prices and as we have outlined many times before, weak pricing causes the greatest rot of house builders' margins.
"Couple this with uncertainty on what will happen to help-to-buy and the risk of higher general & building materials cost inflation and there could easily be somewhat greater pressure on both revenues and margins for the national, volume house builders. This is the direct impact but we would also expect to see some rotation effect out of domestic stocks and the house building is one of the purest UK-biased sectors."
Meanwhile, Liberum also argued that increased uncertainty would slow house purchases and make the sector less appealing.
"However, the sector still has strong underpinnings, and government policy is likely to move away from austerity towards fiscal expansion - favouring those who can grow volumes and those involved in social housing."
Liberum expects relative underperformance from the large returners, especially Barratt Developments and relative outperformance from the smaller growers, where it prefers Bellway and Gleeson.
At 0815 BST, Barratt Developments was down 2.8% to 573.29p, Persimmon was off 2.4% at 2,353p, Taylor Wimpey was down 3.3% to 177.40p, Berkeley Group was off 4% to 3,077p, and Bellway was down 2.8% to 2,762.52p.