The share price of London FTSE 100 and FTSE 250 house builders all took a tumble this morning, as fresh reports highlighting the state of the property market dampened investor confidence.
Barratt was the hardest to fall this morning, with its shares sliding 4.67 per cent, as the group reported a 49 per cent decline in the number of first time buyer reservations during the year.
The number of people putting their names down for new homes also slid 32.1 per cent with the figure slowing more significantly in mid May to the end of June, months where the homebuilder tends to see a greater uptick in demand.
Its share price has fallen by a tenth over the past 12 months, as Barratt has had to reduce the number of properties it intends to build during the year due to falling customer confidence.
Fellow property companies also felt the pain of Barratt’s shaky performance as investors predict they will fall in a similarly difficult boat as the year progresses, with the wrath of red hot mortgage rates and soaring inflation continuing to damage faith in the property sector.
Persimmon plc share price fell 1.76 per cent, Bellway shares were knocked 2.27 per cent and Taylor Wimpey’s plunged 3.77 per cent.
Housing market ‘faltering’
“The scale of the challenges cannot be swept under the carpet, and the immediate outlook for the UK housing market, let alone the broader economy, is faltering,” Richard Hunter, head of markets at interactive investor, said.
“The shares have taken something of a hit in early trade on the mixed messages emanating from Barratts’ statement, adding to a decline of 10 per cent over the last year, as compared to a rise of 3.6 per cent for the wider FTSE100.”
He added: “Over the last two years, the price has dropped by over 40 per cent which may just pique the interest of investors on a lower valuation basis. Indeed, while the market consensus of the shares has recently eased slightly, it still remains at a buy which.”
The share price of housebuilders was also impacted by RICS latest residential market survey released today which saw buyer numbers and agreed sales down month on month.
More mortgage pain coming?
It adds to a flurry of reports by high street estate agents which confirms that hikes in mortgage rates are damaging house builders and sinking consumer confidence.
Chris Druce, senior research analyst at Knight Frank, warned that more pain will enter the system in the coming months as another tranche of fixed-term mortgages are renewed at higher rates, and we can expect downward pressure on pricing.
“Sentiment is ultimately unlikely to improve until we have surety about how high borrowing costs will go.”
“However, when we do, demand could prove more resilient than expected given the cushioning effect of strong wage growth, record levels of housing equity, amassed lockdown savings, the availability of longer mortgage terms and forbearance from lenders.”