On Monday morning, British housebuilders found themselves at the forefront of stock market declines, as one of the largest companies issued a profit warning and fresh data revealed the sharpest decrease in asking prices in a five-year span.
Leading the declines on the FTSE 100 was Taylor Wimpey, experiencing a 3% drop, followed by Persimmon, Berkeley, and Barratt, all down approximately 2%. The property website Rightmove also saw a 1% decrease.
Within the FTSE 250, housebuilder Crest Nicholson faced the most substantial decrease after issuing a profit warning. The company indicated that it anticipates a profit of around £50 million for this financial year, a notable decrease from the approximately £74 million projected in June. The decline in profit is attributed to a recent drop in the number of house purchases in recent weeks.
The most recent signal of the UK housing market's challenges emerged as a consequence of escalating interest rates aimed at combating elevated inflation, a decelerating economy, and the broader cost of living crisis. Data from Rightmove revealed that in August, home sellers recorded an average reduction of 1.9% in their asking prices, the most significant decrease since 2018.
In its drive to curb inflation, the Bank of England has raised interest rates progressively, escalating from 0.25% in late 2021 to 5.25% in its recent meeting, marking the highest level since the 2008 financial crisis. Consequently, mortgage rates have surged, rendering housing borrowing more arduous for numerous potential buyers.
Crest Nicholson noted a decline in the number of property transactions, with first-time buyers being particularly affected due to the cessation of the help-to-buy housing subsidy.
Amidst a landscape of persistent inflation and rising interest rates, the trading environment for the housing market has deteriorated during the summer months. Crest Nicholson stated, "While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers."
Victoria Scholar, Head of Investment at the share trading platform Interactive Investor, emphasized that expensive mortgages, broader cost-of-living constraints, and an overarching atmosphere of macroeconomic uncertainty, coupled with sluggish growth and increasing labor market slack, are collectively impacting house prices. Scholar projected further challenges for house prices as the year progresses.
While the deceleration is expected to impact builders' profits, the decrease in asking prices should be viewed against the backdrop of decades of continuous increases that have rendered homeownership unattainable for many first-time buyers. The 1.9% reduction in asking prices, equivalent to a £7,012 price adjustment, resulted in the average asking price on Rightmove's platform reaching £364,895. Despite the reduction, average prices remained £59,000 higher than in August 2019, reflecting a 19% increase.
According to official government data, the average house price in the UK stood at £288,000 in June. This reflects a £5,000 increase compared to the previous year, albeit £5,000 below the recent peak recorded in November 2022.
Tim Bannister, who oversees data at Rightmove, noted, "There is no surplus of properties available for sale, as the number of listings remains lower than during the same period in 2019. Homes are still selling at a faster rate, with the average time to secure a buyer now at 55 days, compared to 61 days in 2019. The decreased number of agreed sales relative to this time in 2019 underscores the affordability challenges that many buyers are currently grappling with."
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