(Bloomberg) -- Morgan Stanley analysts said they favor buying more UK homebuilder stocks, just after the sector slumped the most since the plunge triggered by the Truss government’s mini-budget two years ago.
A FTSE index of companies that construct new homes in Britain was steady Friday after falling 5.9% Thursday, when markets reacted to Chancellor Rachel Reeves’ budget. That compared with a drop of 7.4% on Sept. 29, 2022 after former Prime Minister Liz Truss’s chancellor, Kwasi Kwarteng, laid out plans for huge tax cuts.
“We would use this opportunity to add to our preferred names,” Morgan Stanley analysts led by Cedar Ekblom wrote in a note to clients. The team reiterated overweight stock ratings for Persimmon Plc and Barratt Redrow Plc.
Swap rates that are used to price mortgages have risen this week on concern that Reeves’ spending might lead to fewer interest rate cuts from the Bank of England in the short term, hampering demand for new homes.
However, “while the budget may mean a delay in the declining rate path, ultimately we still think interest rates will move lower from here,” Ekblom said.
Data from Nationwide Building Society showed UK house prices rose less than expected in October, suggesting the property market was already losing momentum before the budget.
In measures affecting the sector directly, Reeves announced an increase of 2% on the stamp duty for second homes and £5 billion ($6.5 billion) in funding for affordable housing over 2025-2026.
“The pullback has less to do with anything specific to the housebuilders in the budget, in our view, and more to do with the rates move,” added Ekblom.
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