Housebuilders see shares fall as housing market woes continue

11 June 2008

Two of the UK’s biggest homebuilders suffered sinking share prices yesterday after more bad news about the future of the housing market.

Persimmon, the country’s biggest housebuilder in terms of market value, saw its share price fall from 428.75p on Monday 9 June to 387.5p when the markets closed on Tuesday. The price continued to fall today.

Meanwhile, Barratt Developments saw its share price fall from 120.75p on 9 June to 91.5p at the end of play on Tuesday. This morning, it has seen shares dive further to around 69p.

The falls were triggered in part by two reports, from Goldman Sachs and Merrill Lynch, warning that tighter credit conditions for mortgage lenders mean demand and prices for new property will continue to head south.

Mark Hake, an analyst for Merrill Lynch, said the market had gone beyond “tipping point” with the UK housing market being squeezed by both lenders and buyers.

The losses also came amid new data from the Royal Institution of Chartered Surveyors revealing that housing transactions are at their lowest levels for 30 years.


In his report, Hake also noted that unemployment trends would determine the severity of the housing slowdown. Experts have previously stated that the chances of a housing market crash would be propelled by rising unemployment – as occurred in the recession during the early 1990s.

Today’s official employment figures show that although employment has risen by 446,000 over the past 12 months, there has been an increase of 38,000 people listed as unemployed over the past three months.

In addition, the number of people claiming one of the key out-of-work benefits increased by 9,000 during May alone.

Michael Hume, the chief economist at Lehman Brothers, says the figures confirm fears that employment growth has started to slow.

“We expect unemployment to continue to edge up during 2008 as tighter credit conditions continue to act as a drag on activity more broadly,” he adds.

Ed Stansfield, a property economist at Capital Economics, says official figures show the economy is doing well with deterioration linked specifically to the housing market.

The question, he adds, is to what extent will this be reinforced by the declining labour market.

“As banks’ funding problems dissipate, rather than see the housing market pick-up, the economic situation (job losses etc) will simply take over,” he says.

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