FTSE 100 Review: Barratt Slumps

Is the housing market about to crash?

While the country does have to wait some time for concrete Land Registry data, key statistics this week show:

• Halifax’s house price index showed that prices fell by 4.6% over the past year in August — the largest decline since 2009;
• Zoopla now thinks that home sales will fall by 20% in 2023, to their lowest volume since 2012;
• The Bank of England reported mortgage approvals fell to 49,400 in July — a tenth consecutive month where approvals have been below the 2022 average of 62,700.

While this looks dire for housing-related stocks in the FTSE 100, there are of course some caveats. For one, selling prices remain well above their pre-pandemic levels. Plus, the relaxation of nutrient neutrality laws, wage growth, and lower mortgage rates, should help to prop up house prices. And with a government trailing far behind in the polls, a revamped Help to Buy scheme or a second Stamp Duty Holiday could provide a tailwind.

Interestingly, SpareRoom data now indicates that the average cost of renting a room in London has now risen above £1,000 per month for the first time, a rise of 15% over the past year. There are 5.7 renters looking for each room available on the site — three times the pre-pandemic average. The incentive to buy your own home is only getting stronger.

Negatively, Berkeley‘s update also carries concerns despite upholding its pre-tax profit guidance of £1.05bn. Underlying private sales reservations were down 35% over the past four months compared to the same period last year. But the FTSE 100 builder is perhaps better placed than its peers given its focus on developing higher-end properties in London and the South-East, where customers are less affected by economic pressures.

Right now, there appears to be a stand-off between sellers who are refusing to lower prices, and buyers refusing to pay the prices demanded. As Zoopla notes, this is leading to falling sales volumes. But at some point, ‘forced sales’ from divorce, death, or distress could start setting new pricing levels. And if core inflation stays higher for longer than expected, or higher rates do trigger a recession, further falls may be inevitable.