Housing market enters hibernation, and Domino’s sees surge in demand

“Asian markets followed Wall Street’s very impressive rally last night with a strong showing to the end of the trading week. Japan’s Nikkei 225 index jumped by 3.9%, Hong Kong’s Hang Seng index advanced by 0.6% and Shanghai’s SSE Composite moved 0.3% higher,” says Russ Mould, Investment Director at AJ Bell.

“Unfortunately the joy did not spread to the UK and Europe where stocks went into reverse. Germany’s DAX index and France’s Cac 40 index both fell by 1.8%.

“The FTSE 100 dropped by 3.3% to 5,623, dragged down by oil producers, banks, miners and housebuilders. Brent crude oil slipped by 1.6% to $25.92 per barrel and gold was also in decline, down 1% to $1,610 per ounce.

“More companies decided not to pay dividends including Royal Mail, Meggitt, Domino’s Pizza and Rightmove. Coca-Cola HBC and SSE opted not to cancel their dividends for now."

Banks, Housebuilders and the Housing market

“Just like other sectors of the economy the housing market is going into hibernation. It faces a double whammy – coronavirus containment measures make the practicalities of moving house almost impossible and banks are withdrawing mortgage products at pace.

“While all this has emerged in the last 24 hours or more, it has taken some time for the market to digest the news and it has concluded it is horrible for the housebuilders.

“In any normal year they would be in the middle of their key spring selling season. This year is already going to be very different.

“The hope will be that the reduction in mortgage availability is a temporary measure. The abundance of cheap mortgages, amid heavy competition amongst lenders, has been one of the key factors helping to underpin the housebuilding sector in recent years.

“If mortgages for customers on a higher loan-to-value do not come back at the same level when the current health crisis is over, then people will find borrowing much more expensive.

“Housebuilders might have to cut their asking prices to sustain demand and this would put increasing pressure on industry margins.

“For the time being all housebuilders can do is shut down construction sites and cut dividends as they batten down the hatches to weather the storm.

“They may emerge into a market backdrop which is much cloudier than it has been for some time.

“But with the country still having an insufficient supply of homes to meet long-term demand, politicians may have to think of ways to encourage building to continue if an escalating housing crisis is not to follow on from the coronavirus.”

Domino's Pizza

“It should come as no surprise that Domino’s has seen an increase in business given that it is one of the best known takeaway brands in the UK and we’ve got a considerable chunk of the population sitting at home looking for easy options to be fed.

“Only three weeks ago the company was talking about the importance of collection to its sales and how it was a big growth opportunity. Collection has now been shut off, thereby denying the company a source of revenue which typically accounts for around a fifth of its sales.

“A recent spike in delivery demand has more than offset the lack of collection sales, but one has to wonder how long this will last. In time supermarket shelves will be better stocked and households will be able to start filling their fridges and cupboards, implying that luxuries like a £20 takeaway pizza might become less frequent.

“If that does happen, Domino’s will no doubt hope that a blip in sales is only temporary. After all, in times of sunny weather, Domino’s has historically argued that people get bored of barbeques and start ordering pizzas. It will now be hoping that the nation quickly gets bored of jacket potatoes, beans and cheese in favour of going back to regular takeaways.

“Yet with a lot of people nervous about job security, the idea that Domino’s is always going to be in demand during the lockdown is not a given.”

These articles are for information purposes only and are not a personal recommendation or advice.