Major housebuilders warn of a slowdown in the UK housing market
Taylor Wimpey, MJ Gleeson, Persimmon, and Barratt all released trading updates over the last week that paint a mixed picture of the UK housing market. The builders managed to maintain sales, but warned of multiple challenges that plagued the market in 2022, particularly towards the end of the year, that will likely continue to impact prospective buyers in 2023.
Housebuilders by numbers
Source: Sharepad
Taylor Wimpey
( ) said ongoing market uncertainty translated to sales "significantly below levels seen prior to the rise in mortgage rates in Q3 2022". The builder is therefore entering 2023 with a lower private order book compared to recent years, expecting volumes to reduce in 2023.
In order to deal with difficult market conditions, Taylor Wimpey has put in motion a cost cutting programme meant to generate annualised savings of c. £20m, though the programme itself will cost £8m.
Still, Taylor Wimpey reported an overall positive 2022, thanks to its "selling price discipline and operational controls". Its average UK selling price was up 6% to £352k, though in Spain the company's average selling price fell 8.2% to €383k reflecting more sales taking place in Alicante, an area with a lower average selling price.
Taylor Wimpey expects to report full-year operating profit in line with expectations.
MJ Gleeson
( ) stock was up 8% on Friday after new data showed UK house prices were c. £17.5k higher on average than at the beginning of 2022, albeit accompanied by a fall in demand. Gleeson reported a 4.1% fall in the number of homes sold during the half-year to 31 December, compared to the same period last year.
MJ Gleeson remained "cautiously optimistic" of a recovery in the housing market in 2023, due to a number of factors including mortgage rates continuing to fall from their October 2022 high and the need for low-cost/high-quality homes remaining acute. "A couple earning the National Living Wage (which is set to increase by 9.7% on 1 April 2023) can still afford to buy a home on any one of our sites", Gleeson noted.
MJ Gleeson said its outturn for the current FY would depend on the pace of recovery in the housing market. The company will deliver a further update with interim results on February 16.
Persimmon
( ) maintained its sales performance in 2022 with 14,868 new homes sold, which is toward the upper end of its previous guidance. Build rates also tracked 8% ahead of 2021. However, the company's forward sales position fell -36% to £1bn from £1.6bn in 2021, of which private forward sales fell -56% to £0.5bn.
Persimmon said its weekly sales rates and forward sales position were impacted by rising interest and mortgage rates, inflation, and weaker consumer confidence, particularly in Q4. Part of the reason for the drop in demand was the closing of applications for Help to Buy on October 31. Persimmon expects the end of Help to Buy in March 2023 to continue having an adverse affect on the market in 2023.
Still, Persimmon anticipates its average outlets to remain broadly similar in 2023 at 250-260, and remains optimistic for longer-term demand for new homes, seeing the headwinds mentioned as short-term effects for 2023.
Persimmon shares were up 5.1% on the news last week. Persimmon will release full 2022 results on March 1.
Barratt Developments
Likewise, ( ) delivered good sales performance in the 6 months to 31 December, with total home completions advancing 6.9% year-on-year, thanks to a strong forward order book. Barratt's average sales price also increased 14.6% to £330k.
However, Barratt's forward sales fell -29.1% in the half-year and its sales rate weakened to 0.44 from 0.79 the year prior. The company echoed the other builers in warning of a "marked slowdown" in the UK housing market in the latter part of calendar 2022.
"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 explained.
As a result of these headwinds, Barratt sees the outlook in 2023 as uncertain and says its full-year outturn will depend on whether the usual spring trading pattern of increased reservation rates occurs this year or is offset by faltering consumer confidence and higher mortgage rates.
Barratt will release full interim results on February 8.
View from Vox
The picture painted by the UK builders is clear: the market is still humming along, but facing multiple challenges causing forward sales to drop in the second half, a trajectory expected to continue into 2023.
In the short-term, concerns over the economy, interest rates, inflation, and the cost of living crisis are likely to weigh on consumer confidence, including homebuyers. This largely mirrors warnings issued by major grocery chains in their batch of trading updates last week.
The end of Help to Buy in March 2023 will have an additional negative impact on the market. Persimmon estimates that the end of Help to Buy, combined with higher mortgages rates, has already resulted in approx. a doubling of the monthly cash cost of mortgage payments, explaining muted demand into 2023.
Still, builders remained optimistic about long-term demand. The BoE forecasts inflation to begin falling "sharply" in the second half of 2023, which should give relief to consumers and result in lower mortgage rates, already thought to have peaked in October. Lower house prices should help the recovery as well. The question is, will this be enough to offset a broader economic slowdown in 2023 and beyond.
Vox investment experts John Hughman and Paul Hill discussed housebuilders and healthcare in last week's issue of Vox Markets Sector Series. Click here for that conversation, also included below.
Follow News & Updates from Taylor Wimpey: , MJ Gleeson: , Persimmon: , and Barratt:
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.