Is the London property boom over? Judging by Foxtons' (LSE: FOXT) downbeat trading statement last week, it may well be. Foxtons has made hay in what has been a very frothy market. But now it looks like the tide has turned.
Foxtons is selling fewer houses than it was a year ago, and lettings income isn't growing at all. This shouldn't be a surprise.
House prices in London have defied logic for some time now and cannot keep going up forever. Mortgages are harder to get and buyers seem to be baulking at paying lofty asking prices for properties.
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This is bad news for Foxtons, which has been opening up new branches to capitalise on London property mania. Fewer house sales means less commission, but with costs rising at 10% this year so far, profits look set to fall by a long way.
Foxtons, which has no debt, is unlikely to go to the wall. However, with lots of fixed costs to pay, its profits are very sensitive to changes in revenue, which is heading south.
It looks pretty safe to say that last year's profits of £51.7m represents a high-water mark for now. If so, then Foxtons' current market value of around £450m (at a 161p share price) is probably too high.
Verdict: avoid
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