StockBeat: Boom Times Beckon for U.K. Estate Agents

The U.K. housing market is changing for good as a result of the pandemic, but you wouldn’t necessarily guess it from looking at the sector’s stocks.

Activity in the housing market has rocketed in the weeks since the U.K. government relaxed its restrictions on viewings, as wealthy city-dwellers sell up in search of more space in the suburbs and beyond. Even if most don’t expect to work from home constantly forever, it’s a contingency that for many has become necessary to plan for.

According to Zoopla, the country’s second-biggest online platform for property sales, the time taken to sell a house has fallen 31% from last summer.

“This is not just pent-up demand returning to the market,” Zoopla said. “It also reflects the impact of a once in a lifetime reassessment of the nation’s housing needs in the wake of the 50+ day lockdown. Homeowners and renters are reconsidering their housing requirements, characterised by a search for more space and changing expectations for work and commuting patterns.”

Zoopla expects this to continue well into the fourth quarter. Prices are still – for the moment – rising in almost all parts of the country. That means there’s no brake on supply from sellers trapped by negative equity, and lessens the fear of trying to sell into what, in view of the economic situation, ought to be a weak market.

A golden opportunity, then, for estate agents (as the Brits call realtors), whose business depends more on transaction volumes than on prices paid. But the market appears to be slow in coming round to the idea.

Yes, estate agents’ share prices have outperformed the more actively traded housebuilder stocks in the last month, but for the year-to-date, it’s a very different picture. Foxtons (LON:FOXT) and Countrywide (LON:CWD), two of the best-known agent names, are still down over 55%.

Countrywide has also been hampered by trouble selling its commercial property arm, and structural shifts to online platforms and the sudden stop in business in March have punished pre-existing balance sheet weakness. But even online specialist Purplebricks (LON:PURP) has hardly fared better, losing 30%.

For pure online plays, Purplebricks and Onthemarket (LON:OTMPO) are the only two alternatives to Rightmove (OTC:RTMVY), whose 5 billion-pound price tag is more than 15 times their combined market value. In recent weeks, there have been signs that both are starting to lure independent agents away from Rightmove with advertising terms. Purplebricks is up 84% this month, and gained another 5.4% on the back of the Zoopla report. Rightmove gained 0.4% and has risen 11.6% in the same period. The U.K. FTSE 250 midcap index, meanwhile, slipped 0.1% by mid-morning, having risen 2.6% over the last month.