Charlie Huggins, Head of Equities at Wealth Club, says the housing market is very difficult to call right now.
There has clearly been a marked slowdown in housing market activity in the last six months. Faced with higher mortgage costs and soaring bills, it’s no surprise that new home buyers are exercising greater caution.
Barratt has responded by battening down the hatches, significantly reducing land approvals and placing restrictions on hiring and new site openings. This is sensible in the circumstances.
However, the picture is not looking as grim as it was back in the Autumn, following the disastrous mini budget. Despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders. And there is a growing sense that interest rates are close to peaking. If that turns out to be the case, confidence in the housing market could quickly return.
David Thomas, chief executive of Barratt Developments, warns that the economic background has “clearly been challenging” for housebuilders.
Thomas tells shareholders this morning:
“We have delivered a strong operating performance for the six months to 31 December 2022. This was possible because of our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.
However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.
Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.
Barratt: Marked slowdown in UK housing market
Britain’s largest homebuilder, Barratt Developments, is warning this morning that high mortgage rates are hitting the housing market, as demand slows.
Barratt’s latest half-year results, for the six months to 31 December 2022, also show that the drop in UK house prices has hit its sales and profit margins, as its costs also rise.
Barratt reports that there was a “marked slowdown in the UK housing market” in the first half of its financial year (the second half of 2022), as the mini-budget hit confidence and drove up borrowing costs.
The company tells the City:
Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.
Barratt completed 8,626 homes in the second half of last year, a 6.9% increase on a year earlier. Gross profits rose 15.2%, but its gross profit margins dropped to 23.3% from 25% in the six months to 2021.
Demand has been weaker in 2023, although Barratt does say that trading has picked up a little in January.
In January, Barratt’s net private reservations per active outlet per average week has fallen by 45%, due to “more tentative demand”. This slowdown prompted the company to freeze hiring in January.
Forward sales are down too. On 29th January, they were 10,854 homes, worth £2.665bn, compared with over 15,000 at 30 January 2022 (which were worth £4,109.7m).
Yesterday, Halifax reported that UK house prices were roughly flat in January, having fallen in the previous four months.
Introduction: UK may avoid recession, as FTSE 100 heads towards record
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s FTSE 100 share index is heading back towards last Friday’s record high, as hopes build that the UK economy could avoid a recession.
The blue-chip index is rallying in premarket trading, and on track to open just below Friday’s intraday record high of 7906.58 points.
This would extend the Footsie’s gains in 2023, as stock markets rally on hopes that central banks will slow, or stop, their interest rate increases soon.
Last night, the Federal Reserve chair, Jerome Powell, warned, though, that more US interest rates rise will be needed to cool inflation and the red-hot US jobs market.
“We think we are going to need to do further rate increases,” Powell said on Tuesday at the Economic Club of Washington. “The labor market is extraordinarily strong.”
Investors were cheered, though, that Powell said he US was in the “very early stages of disinflation.”
European markets are also set for a higher open, as shares continue to rally in 2023.
The FTSE 100 is dominated by multinational companies, so its strength does not reflect the UK’s economic state.
But there are hopes that Britain may avoid a recession this year, despite the gloomy forecasts from the Bank of England and the International Monetary Fund.
The National Institute of Economic and Social Research (NIESR) predicts this morning that the UK economy will grow marginally in 2023 despite high prices hitting household budgets.
But it warned while the UK may not fall into recession, it will feel like one for at least seven million households.
According to NIESR, households in Britain will suffer a hit to their finances of up to £4,000 this year, with low and middle-income households facing the biggest financial hit from the cost of living crisis.
9am GMT: Italian retail sales for January
Noon GMT: US weekly mortgage applications
3pm GMT: Poland’s interest rate decision