Weekly Market Update- Week Ending 03/03/2023

This week saw a number of announcements that provided insight into the state of the UK residential housing market. Nationwide Building Society reported that house prices were 0.5% lower in February over the month, the sixth consecutive monthly fall, bringing the annual rate (-1.1%) to a negative for the first time since 2012 (ignoring the brief fall at the start of the pandemic). It is not difficult to see the drivers behind this trend, with homebuyers facing a cocktail of higher borrowing costs, soaring household bills, and a general fall in consumer confidence.

For first-time buyers, the falls will be welcomed, with the average house price now £257,406, down from £258,297 in January and a peak of £273,751 last August. With the climbing cost of living, saving for that all-important deposit isn’t being made any easier though.

This challenging outlook was confirmed when Persimmon released its annual results on Wednesday and provided some cautionary guidance for the year ahead. The FTSE 100 housebuilder warned investors that their new home sales could fall some 40% if consumer demand stays at these levels. The shares fell 12% on the day. For income investors, the bad news was further compounded by a 75% reduction in the dividend to 60p a share.

With house prices expected to trend lower in the year ahead, it is difficult to see a catalyst for the shares in the short run. To their credit, the sector in general is in much better shape from a balance sheet perspective going into this downturn than they were in the aftermath of the global financial crisis in 2008/9. This may mean that many of the listed housebuilders have enough cash to batten down the hatches and try to navigate the expected storm ahead, without the need to raise any new capital.

John Naylor, Chartered FCSI – Head of Investment Committee