I think the British love affair with home ownership really started with a vengeance in the ‘70s. The
rampant inflation was kick started by decimalisation. In February 1971 when it came in a loaf was
around 7p. In old money that would have been 1/5d (or 17 old pence). The smallest price increase in
old money would have been ½d, or around 3%. There were 240 old pence in the pound. Once
decimalisation took over, with only 100 new pence in the pound, the minimum increase had to be
1/200th instead of 1/480th. So a halfpenny increase on a 7p price tag was suddenly over 7%. This
could have been avoided by having a ¼p coin after decimalisation, which would have allowed a 3½%
minimum increase on that loaf. The ‘70s may have played out very differently had that coin existed.
Economic turmoil in the early to mid ‘70s led to RPI hitting 25%. As a result the only store of wealth
available to Joe Public was property, and even with high mortgage payments at least you had an
appreciating asset.
Nowadays, it is almost seen as a British human right to buy your own house. Even if you don’t have a
job. I wrote a piece in the June MI Magazine (issue 2) called ‘How To Solve The Housing Crisis’. I
focussed on solutions not involving building new stock as that takes time. I looked at solutions like
council tenants being made to share, just like millions of private tenants have to. But now it looks as
though there may be some movement on building houses. Osborne has announced that there will
be automatic planning permission granted to designated brownfield sites, whether councils like it or
not! The question then is whether or not house builders will be keen to build if, as in the commercial
construction sector, margins are tight. Perhaps they’ll go on releasing sites at a trickle from their
land portfolios.
Buying house builders is not likely to be a short-term trade, but more of an investment. There are a
few interesting charts out there. Obviously there needs to be a buying signal, and a politician’s
announcement probably isn’t it. Taylor Wimpey was a great buy in ’08. Absolutely slaughtered by
the credit crisis you could pick it up for a song at that time. Not sure I’d want to buy it right now
though. Not without a good signal. It’s just completed a measured move (this is what they look like
when they’re completed). So the fact that it’s completed that move means it’s much more likely to
retrace than it was at say 150p a few months ago. This is a monthly chart but on the weekly the
MACD is looking quite unsupportive of a rise, as it’s quite deliberately rolling over and looking pretty
toppy. On the other hand, if we do see a good buy signal then lots of upside potential. A 50%
retracement as shown is a reasonable expectation then, around 275p.
Bovis is one of several house builders that are close to their ATH. There was a measured move here
too but it takes us up to the ATH. That’s going to make it much easier and clearer to see a buying
signal. If it breaks the ATH, and especially if it makes a higher low on it, then I’d consider that a very
good buying signal. Once a chart goes above the ATH there should be no stopping it, the FTSE100
being a notable exception!
If you’re looking for a stock in new territory though, the house builder of note has to be Berkeley.
What a chart! Broke the ’07 ATH over a year ago and made a new ATH, and then took that ATH out.
It then made a higher low, significantly, above the previous ATH. Berkeley also seems ideally suited
to take advantage of brownfield sites. It majors in urban regeneration and mixed use developments
which is only perfect!
The other good news is that it should reduce the amount of corruption in local planning.