- Crest Nicholson Issues Profit Warning
- UK Homebuilder Stocks Experience Sell-Off
- Market Reaction to Declining Asking Prices and Rising Mortgage Rates
As higher mortgage rates and inflation weigh on buyers, a profit warning and a reported steep decline in asking prices trigger a sell-off in housebuilding stocks.
The shares of UK homebuilders have taken a new beating as a result of the sector’s latest woes, including a profit warning from a key player.
Crest Nicholson shares dropped nearly 15% at the start of trading on Monday after the company lowered its adjusted pre-tax profit forecast for the year ending in October by more than 40% to £50 million.
The Chertsey-based company has lost more than a quarter of its market value since the beginning of the year, citing sluggish sales as a result of rising interest rates and inflation.
Despite improvements in share prices by the close of trading, the FTSE housing index experienced its largest monthly decline since September, as the equities of larger competitors also declined. Stocks in the United Kingdom closed at a six-week low.
Taylor Wimpey, Barratt Developments, Berkeley, and Persimmon were the largest decliners on the FTSE 100, with losses exceeding 3%.
In addition, the market reaction followed a Rightmove report indicating a steep decline in asking prices as a result of the double squeeze on consumers.
According to the report, average asking prices dropped 1.9% over the past month, which is the largest drop for August since 2018 and twice as severe as the average summer holiday decline.
As a result of rising mortgage costs, sellers have lowered their price expectations, according to the property website.
Nationwide Building Society reported earlier this month that annual property values fell by 3.8% in July, the largest decline since July 2009.
Friday, Moneyfacts reported that the average two-year fixed residential mortgage rate was 6.76 percent.
The five-year rate was 6.24 percent. Both were the same as the day before.
They are related to the funding costs lenders confront as the Bank of England raises its key interest rate to combat inflation.
The Bank rate is expected to reach a peak of 6% next year, up from its present level of 5.25 percent, according to financial markets.
Crest Nicholson, for its part, reported that industrywide transaction levels had decreased further, particularly in recent weeks, as mortgage borrowing became more expensive.
“Therefore, the group does not anticipate a material improvement in trading conditions before 31 October,” it said.
Seven weeks before August 18th, weekly sales volumes were half of what the company had anticipated for the second half of the fiscal year.
The company posted a profit of £137.8 million during its fiscal year of 2022.
Russ Mould, director of investments at AJ Bell, commented on the market’s reaction, “Weak house price data is hardly a surprise.”
“Economic uncertainty is at an all-time high, mortgage rates have skyrocketed, and the Help to Buy program has ended”.
However, Crest Nicholson’s profit warning has revealed the magnitude of the housing slowdown’s impact on the housebuilding industry.
While not all developers in the space are created equal, the news, coupled with Rightmove’s latest assessment of the property market, has had a ripple effect on share prices in the rest of the industry this morning.
“The £7,000 drop in the average asking price observed by Rightmove in the last month, coupled with a significant drop in transaction volumes, is the type of statistic that gives real estate agents the willies,”
He added, “Investors may be surprised by the magnitude of Crest Nicholson’s warning, given that the company only reported its first-half results a couple of months ago; this indicates the speed and magnitude of the market’s deterioration.”
“The only consolation for shareholders is that Crest Nicholson is maintaining its planned dividend payout for the full year.” However, its downbeat update has alerted the market to the possibility of additional warnings from its industry peers.”
