Berkeley, Persimmon and Barratt hit by house price slowdown
Weak growth in UK house prices has hit the shares of the UK leading listed homebuilders, with pundits concerned that a demand for private housing will prevent the government from reaching its ambitious housing goals.
Berkeley’s share price has dropped by more than eight per cent in the past month and Persimmon is down four per cent. Barratt Redrow has fallen nearly five per cent in the last five days.
“Housebuilders have been pinning their hopes on a more robust property market driven by lower mortgage rates,” Dan Coatsworth, investment analyst at AJ Bell, said.
Data from Nationwide out this morning showed the largest monthly fall in house prices for more than two years, with the average price of a home down 0.8 per cent to £271,619 in June.
“The post-Stamp Duty lull in demand has collided with a deluge of supply,” Jonathan Hopper, CEO of Garrington Property Finders, said.
“In some areas, the flood of supply seems almost biblical… This is not primarily a market correction prompted by falling demand, but one triggered by an inescapable imbalance: too many sellers, not enough serious buyers,” Hopper added.
Robust – but not runaway – house price growth is important for the government’s housing plans; despite wide-ranging reforms to planning and investments in affordable housebuilding, it can only do so much to boost supply in a market economy.
Any effort to fix the UK’s housing crisis requires high levels of construction from private housebuilders, which delivered about 75 per cent of new homes last year.
“The government does not control housing supply. Housebuilders do. They are looking to maximise profit and therefore run a tight ship when it comes to maintaining the supply and pricing level of new homes,” Dr David Crosthwaite, chief economist at BCIS, said.
Optimism falters in the housing market
The drop in housebuilders’ stocks follows a significant rise for almost all listed companies in June.
The mood last month, which was cautious but optimistic, has faltered not just because of slow house price growth, but because alternative boosts – i.e. government reforms – haven’t yet filtered through into housing completions.
Housing starts in the UK increased by just 0.6 per cent on the previous year, according to the latest Homes England data on housing starts and completions.
RSM analyst John Guest said that the impact of removing red tape on planning has only had a “limited” impact on building so far, with a lack of land availability a crucial issue.
Investor confidence will further weaken if house prices – and completions – drop again in July.