Gloom Grips British Housing Market
Barratt Developments warned of more gloom in the housing market yesterday, saying that the tightening caused by interest rate rises and the credit crunch was continuing.
In interim results covering the 19 weeks from 1 July, the house builder revealed that private sales were down compared with a year ago. Barratt attributed the decline in sales, which are now at 2005-6 levels, to the tougher market and its decision not to pursue the lower-margin segments of the buy-to-let market.
The statement comes on the heels of a Nationwide report last week which forecast that fading momentum would cause house-price inflation to drop from its current rate of 9.7 per cent to nought by this time next year.
Barratt's chief executive, Mark Clare, attempted to find a silver lining in the cloud hanging over his industry, saying that buyers' confidence had begun to stabilise after the crisis precipitated by the problems at the high-street lender Northern Rock. "Gross sales over the last few weeks have been actually improving...I don't think customer sentiment is getting any worse, although it's probably too early to say it's getting better," he said. "There is a lot of uncertainty there [in the financial services sector]. That is affecting buyers, and I think that's not going to be clear until we get more clarity from banks and main lenders as to what their financial position is."
The builder blamed the impact of five interest rises in less than two years, coupled with the more recent liquidity squeeze affecting the availability and cost of mortgage finance, for the tightening of the housing market.
Barratt revealed a strong forward order book, standing at £1.8bn, and said that, together with completions to date, it had secured 61 per cent of its full-year requirement. The company estimated first-half home completions to number 8,750 units, and said that cancellations had risen above the exceptionally low levels seen last year. In the period to the end of October, net average selling prices also rose, by 2 per cent.
The company, which bought rival Wilson Bowden in February this year in a £2.2bn deal, said it was making good progress in delivering synergy targets of at least £30m in 2007-08, and at least £60m in the following year.
Mark Hughes, an analyst at Panmure Gordon, said that Barratt's statement, while far from positive,was not as bad as he had expected. "Clearly share prices of house builders have fallen more than 50 per cent in recent times. As a group, they are clearly struggling and it [Barratt's statement] could have been worse," he said.
"We will probably hear bad news next year as more information comes out. It's been a weak 12 months, but next year is going to be difficult. The current period leading up to Christmas is usually slow but February, March and April are very important for house builders, so that will probably be the next trigger for further bad news."
Shares in the company, which have fallen by 59 per cent this year to become the third-worst performer on the FTSE 100, closed down 5 per cent at 480p.