Enjoy The Foxtons Ride, But Beware The End Of The Road

It was hardly surprising that Foxtons was welcomed onto the London Stock Exchange with such enthusiasm. It’s one of the best-known estate agents operating in London and Surrey, where house prices are booming once more and rents also remain sky-high.
For investors, Foxtons is a play on the turnaround in the UK housing market as it recovers in the wake of the financial crisis and ensuing economic downturn. Other such plays have made investors big returns in recent months.
Nationwide estate agency Countywide is up 47% since it relisted in March and housebuilder Crest Nicholson has risen 31% since its IPO in February. The other listed housebuilders such as Persimmon, Bellway, Redrow, and Barratt Developments, which just about survived the downturn with their listings intact, have shot higher as the UK government’s Help-to-Buy scheme has got first-time buyers back into the market, pushing up prices, particularly for smaller properties.
But investors should not ignore the experience of the last five years. The UK housing market is completely tied to the fate of the wider economy and therefore remains cyclical. (Yes, Gordon Brown, we still have boom and bust.)  Even though the housing market in London and the southeast is well supported by its chronic shortage of supply, if the economy weakens, the housing market weakens.
While Countrywide and Crest Nicholson returned to the market at the bottom of the current cycle, the later arrival of Foxtons means it must have a smaller upside potential.
At some point the Bank of England will stop pumping billions of pounds into the economy and leave the job to the banks, who still do not have the firepower to take on the scale of the job the central bank has been doing. That’s bound to hit growth.
There are also plenty of threats to the growth in the housing market even if the wider economic recovery is sustained. The BoE will at some point start raising interest rates. That’s going to make mortgages more expensive, putting off some buyers and likely pushing some already on the housing ladder off it again.
The bank also has a range of new weapons available to it to stop house prices running away. It could order banks to take a range of measures to make it much more difficult to get a home loan. Mark Carney has pledged to fire the bullets if prices look as though they’re getting out of control.
So enjoy the Foxtons play while it lasts, but recognize it’s a risk play and one that has a big possible downside when things go south once more, as they inevitably will.
 
(Disclaimer: ALLNewsBlog has managed to avoid the Foxtons minis during 20 years of renting and then buying and selling properties in London and Surrey and is therefore not swayed by any experience of its estate agency work.)