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Housebuilders Upbeat Despite Slowing Market

Listed builders have been updating the market this week in the context of an uncertain outlook for house prices

James Gard 16 November, 2017 | 3:55PM

Building site

House price surveys are suggesting that growth in the UK property market is slowing down or, in some areas, falling. But is there any evidence of this slowdown in recent trading updates from the country’s listed housebuilders?

Last week Britain’s biggest housebuilder Persimmon (PSN) caused a rare wobble in the sector’s shares as it revealed that sales from July to November 2017 were flat on the same period last year. The number of sales outlets was down 10% year on year. The trading statement did not include any new detail on profit margins, average selling prices or dividends, which are a strong part of Persimmon’s appeal to individual investors with a yield over 5%.

This was also the first market update from listed housebuilders since the Bank of England raised interest rates to 0.5%.

Nevertheless Persimmon said that “consumer confidence is resilient” and that “pricing remains firm” across the regions. The company’s share price fell after the update from nearly £29 to around £27 a share.

This week saw four more trading updates: FTSE 100 listed Taylor Wimpey (TW) and Barratt Developments (BDEV), and FTSE 250 listed Bovis Homes (BVS) and Crest Nicholson (CRST).

“Trading is in line with expectations, the market remains strong … The demand for new homes continues to be robust across all our regions and customer interest remains good,” said Bovis Homes this week. The company expects to report a rise in average selling prices for the full year after a “modest increase” in underlying prices.

Bovis rejected takeover bids from Redrow (RDW) and Galliford Try (GFRD) earlier this year. The company’s share price is significantly higher than at the start of the year and trading close to record highs seen before the financial crisis, but has softened since Persimmon’s trading update.

While Crest Nicholson revealed a rise in completions, units sold and forward sales for the year ended October 31, the company’s share price fell nearly 5% after the update.

Taylor Wimpey said on Monday: “While we are alert to potential political and economic risks, demand for new housing remains high across the UK and market conditions are favourable.”

In the year to date, sales rates were higher than the equivalent period in 2016, but the current order book of 8,751 homes was over 200 lower than last year. Build costs are expected to rise up to 4% this year on higher material and labour costs. The company’s share price has fallen below 200p since the start of November but are up around 30% since the start of the year.

Barratt Developments said on Wednesday that its business was being “supported by an attractive lending environment” and rising consumer demand. In an update covering the period from July to November it said that forward sales were over 8% higher than the same period last year at nearly £2.9 billion. After a push from 600p to 700p in October, the company’s shares have weakened since and are now trading around 630p.

A number of these housebuilders have cited planning restrictions as obstacles to further growth, and have urged the Chancellor to look at the issue in next Wednesday’s Budget. Persimmon said last week that “achieving detailed planning consent remains as challenging as ever”. 

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Barratt Developments PLC623.50 GBX-1.42-
Bovis Homes Group PLC1,136.00 GBX-0.87-
Crest Nicholson Holdings PLC516.50 GBX-1.34-
Persimmon PLC2,626.00 GBX-0.98-
Taylor Wimpey PLC200.40 GBX-0.50-
About Author

James Gard  is subeditor for Morningstar.co.uk