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Uk Homebuilders Prepare For Worse, But No Easy Fixes

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http://www.guardian.co.uk/feedarticle?id=7359316

UK homebuilders prepare for worse, but no easy fixes

* Reuters

* , Wednesday March 5 2008

By Miyoung Kim

LONDON, March 5 (Reuters) - Britain's housebuilders are building fewer homes in the face of tighter mortgage lending and an uncertain price outlook, but slashing volumes and costs may not be enough to lure back investors to the battered sector.

Britain's major builders completed fewer homes last year -- about 76,000, down around 10 percent on 2006 -- as higher interest rates and the global credit crunch drove away buyers.

And things are set to get worse, with analysts predicting 10-16 percent fewer new homes this year, a price fall of around 3 to 5 percent and a drop of some 20 percent in transactions.

Such worries have pushed shares of major housebuilders including Barratt and Taylor Wimpey down more than 50 percent in the past six months.

The stocks have recouped some of the losses since mid-January, as value investors entered the market, but analysts warn of tougher times ahead and prolonged volatility, as data so far sends mixed signals on the market conditions.

"Tighter credit is the major constraint, and this is unlikely to change for a while. So no one is expecting that a short, sharp shock will be followed by a swift, V-shaped recovery," Charles Stanley analyst Tom Gidley-Kitchin said.

Citigroup and KBC analysts agree the sector is cheap, but they caution that any revaluation is unlikely until late April and May when more solid data on the spring selling season is available.

"A lot of this (macro economic and liquidity risk) is already in share prices ... (but) our preference is to wait for another three months or so of data, as by then there will be much more evidence of either a stabilisation in the market or a clear drop in activity," Citigroup analysts said.

SIGNS OF RECOVERY?

Housebuilders, in the midst of reporting 2007 results, are divided on whether the market is showing signs of recovery after its sharp downturn in the final few months of 2007.

Barratt Chief Executive Mark Clare, on the one hand, said last week the market was improving more quickly than he had expected.

He pointed to a 36 percent rise in property viewings from the second half of 2007 and a return in the number of people cancelling reservations to the usual level of about 20 percent.

These signs of hope were given a tentative boost last week by official figures. While reporting the smallest rise in mortgage lending for 2-1/2 years, the Bank of England also said that mortgage approvals -- an indication of future lending -- unexpectedly picked up in January.

But other builders such as Galliford and Redrow turned more cautious, as they prepare to spend more on incentives such as part-exchange deals and mortgage assistance to restore falling sales.

Persimmon reported a 19 percent fall in presold homes last week versus a 14 percent drop in January, while Barratt's forward sales decline was 7 percent versus 6 percent in January.

A further weakening in house prices -- which in January recorded their biggest quarterly fall in at least a decade -- would be a big blow to builders, which are under additional pressure from high prices for raw materials.

Builders' drive to cut costs, which has been so far centred on reducing labour costs, closing branches and renegotiating terms with subcontractors, will also have only limited impact on improving margins without house price rises, analysts say.

"We see the new build sector having difficulties cutting costs as land within cost of sales is essentially fixed or rising, materials costs look likely to rise and the hoped for 5-10 percent cut in labour costs looks hard to achieve," KBC analysts said.

Cazenove analysts estimate the impact of lower house prices on builders' bottom line is four times bigger than a volume change, with a 1 percent drop in prices cutting operating profits by 4 percent.

They believe after a recent recovery, the shares of housebuilders no longer adequately price in the possibility of a recession. UK housebuilders trade at 9.5 times forecast earnings, versus the overall market's 11 times.

For longer-term investors, however, builders still appear a good bet, with tight supply of new stock set to continue and a massive discount to their asset values such as land.

The number of households in England is currently estimated to outgrow housing stock by 38,000 a year due to immigration and a growing number of single-member households, according to the government.

Britain already has one of the slowest rate of housing starts across Europe, ahead of only Slovakia, Poland and Germany -- a fact which builders, and many industry analysts, blame on the government's tight planning laws.

"With an ongoing restrictive planning regime, it is unlikely that enough homes will be built to catch up demand. This is not a problem that will ease over the next few years," Panmure analysts said. (Editing by Quentin Bryar)

stagflation killing the builders ?

Edited by Ash4781

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http://www.guardian.co.uk/feedarticle?id=7359316

stagflation killing the builders ?

He pointed to a 36 percent rise in property viewings from the second half of 2007 and a return in the number of people cancelling reservations to the usual level of about 20 percent.

Talk about clutching at straws.

They could say that they have a 100% reduction canellations if no orders are placed. These sorts of comments won't wash with shareholders for much longer. Shareholders want things quantified in Pounds and Pence, not viewings and cancellations.

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Talk about clutching at straws.

They could say that they have a 100% reduction canellations if no orders are placed. These sorts of comments won't wash with shareholders for much longer. Shareholders want things quantified in Pounds and Pence, not viewings and cancellations.

LOL! Quite right - reminds of dot com bubble when businesses were valued not on turnover but on "clicks" - ie. number of visitors even though they may spend nothing. Sound familiar?

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LOL! Quite right - reminds of dot com bubble when businesses were valued not on turnover but on "clicks" - ie. number of visitors even though they may spend nothing. Sound familiar?

But, but fewer houses mean greater rises that's what everyone said!

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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