The UK housing market is facing a slowdown as home sellers slash prices at the fastest rate since 2018, according to the latest data from Rightmove. The online property portal reported a 1.9% drop in average asking prices in August compared to a month earlier, making the sharpest fall in five years. The decline was driven by a lack of demand, especially in London and the South East, where prices fell by 2.4% and 2.1% respectively.
Crest Nicholson Issues Profit Warning
The weak housing market has also hit the profits of homebuilders, as evidenced by a profit warning from Crest Nicholson on Monday. The FTSE 250 company said it expects to make a pre-tax profit of between £110m and £120m for the year ending October 31, down from £146.7m last year and below analysts’ expectations of £132m.
Crest Nicholson blamed the profit warning on lower sales volumes, higher build costs and lower margins. It said it sold 1,965 homes in the first half of the year, down from 2,289 in the same period last year, and that its operating margin fell to 11.4% from 16.4%. It also said it was facing challenges from labour shortages, supply chain disruptions and planning delays due to the Covid-19 pandemic and Brexit.
The company’s shares plunged by 14.4% to 166p on Monday morning, their lowest level since June 2020. Crest Nicholson also said it would maintain its dividend at 4.1p per share for the full year, despite the lower profits.
Other Homebuilders Follow Suit
Crest Nicholson’s profit warning had a knock-on effect on other homebuilders’ shares, as investors feared that the housing market slowdown would affect their earnings as well. The UK homebuilders index fell by 2.9% in early trading on Monday, dragging down the FTSE 250 by 0.25%.
Among the worst performers were Taylor Wimpey, which dropped by 5.3%, Persimmon, which fell by 4.6%, and Barratt Developments, which declined by 4%. Even FTSE 100 companies such as Berkeley Group and Land Securities were not immune, as they lost 3.8% and 2.7% respectively.
The share price falls reflect the growing uncertainty over the outlook for the housing market, which has been boosted by government schemes such as the stamp duty holiday and the Help to Buy equity loan scheme in recent years. However, these schemes are due to end or be scaled back soon, which could dampen demand and put pressure on prices.
China Cuts Interest Rate Amid Economic Slowdown
The housing market woes in the UK are not isolated, as other countries are also facing economic challenges amid the Covid-19 pandemic and its variants. China, the world’s second largest economy and a major trading partner of the UK, has cut one of its key lending rates but left another unchanged on Monday, surprising economists who had expected more forceful action to support growth.
The People’s Bank of China (PBOC) lowered its one-year medium-term lending facility (MLF) rate by five basis points to 2.75%, but kept its benchmark loan prime rate (LPR) unchanged at 3.85%. The MLF rate is used by the central bank to provide liquidity to commercial banks, while the LPR is used as a reference for lending rates to businesses and households.
The PBOC’s decision came after data showed that China’s economy grew by 7.9% year-on-year in the second quarter of 2021, down from a record 18.3% in the first quarter and below market expectations of 8.1%. The slowdown was attributed to weaker consumer spending, rising Covid-19 cases, regulatory crackdowns on various sectors and power shortages.
The PBOC’s move was seen as a signal that it is willing to ease monetary policy to cushion the economic impact of these headwinds, but also that it is cautious about adding too much stimulus that could fuel inflation and debt risks. Analysts said that more policy easing measures could be expected in the coming months, such as further cuts in reserve requirement ratios (RRR) for banks or targeted support for small businesses.
